NEW YORK, USA (AP) — Oil prices hovered above US$89 a barrel yesterday as traders anticipated that weekly US crude inventories would fall in a sign of improved demand.

Benchmark oil for February delivery rose 45 cents to settle at US$89.82 a barrel on the New York Mercantile Exchange.

Oil traded in the $70s for most of this year, but jumped to a two-year high above $90 earlier this month as Federal Reserve measures to keep lending rates low fueled optimism US economic growth will accelerate next year.

“Traders and investors are starting to feel more upbeat about the economy and about the impact of the Fed’s moves in recent months to change the psychology,” Cameron Hanover said in a report.

Oil traders remained optimistic about improving demand for energy products as millions of Americans travel for the holidays. And heating oil purchases are expected to rise 4.6 per cent above normal for this time of year because of cold weather, according to a research note from MF Global.

The government issues its weekly report on the nation’s petroleum supplies today. According to Platts, the energy information arm of McGraw-Hill Co, analysts expect crude oil supplies to fall by 2.4 million barrels. Shrinking oil inventories can point to higher prices, but rising prices so far are mainly fired by hopes for stronger oil and gas demand in the near future.

“The underlying facts of the market really haven’t changed too much. A lot of the upside potential of the market is predicated on the economic recovery,” Tradition Energy analyst Gene McGillian said.

PFGBest analyst Phil Flynn speculated that an improving economy could limit oil price rises, if the dollar grows stronger. Since oil and other commodities are priced in dollars, a stronger dollar makes them more expensive for traders who use other currencies.