Jan. 2 (Bloomberg) -- Crude oil rose to $98 on forecasts U.S. stockpiles fell for a seventh week and concern violence may further cut output in Nigeria, Africa's biggest producer.

Nigerian militants killed 12 people in the southern oil city of Port Harcourt yesterday. Violence has already cut production by about 500,000 barrels a day. A U.S. government report tomorrow will show a drop in crude supplies last week, from their lowest in three years, a Bloomberg survey showed.

``The market's kicked off higher on expectations of another crude stock draw,'' said Robert Laughlin, a senior broker at MF Global Ltd. That's ``combined with renewed violence in Nigeria and terror worries in Pakistan,'' he said.

Crude oil for February delivery climbed as much as $2.31, or 2.4 percent, to $98.29 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $97.82 at 1:42 p.m. London time.

Last year, prices surged 57 percent, or $34.93 a barrel, the biggest annual percentage increase since 2002. New York futures reached a record $99.29 on Nov. 21 as a weaker dollar made crude cheaper in other currencies. Forecasts for colder winter weather in the U.S. added support to crude prices.

A winter storm in the U.S. northeast, where four-fifths of the country's heating oil is consumed, may boost demand. A storm that swept east from the Great Lakes could drop as much as 14 inches (36 centimeters) of snow on parts of northern New England today.

Brent Crude

Energy usage for heating in the Northeast is expected to be ``much above normal'' today and tomorrow and then fall to below normal, said a forecast yesterday from Meteorlogix LLC.

Brent crude for February settlement rose as much as $2.55, or 2.7 percent, to $96.40 a barrel on the ICE Futures Europe exchange. It traded at $96.06 at 1:18 p.m. London time.

The London benchmark rose 54 percent last year, the most since 1999, when prices more than doubled. The New York and London exchanges were closed yesterday for New Year's Day.

Oil advanced 2.9 percent in New York last week after the assassination of former Pakistani Prime Minister Benazir Bhutto sparked concerns of instability in the nuclear-armed nation.

U.S. crude oil stockpiles probably dropped 3.15 million barrels in the week ended Dec. 28, from 293.6 million barrels the week before, the lowest since the week ended Jan. 14, 2005, according to the median of responses by four analysts before the Energy Department report.

Gulf Coast

All the analysts said supplies dropped last week, citing increased processing rates to make fuel and a drop in inventories in states along the Gulf Coast.

``The price is holding up quite strongly,'' said Eugen Weinberg, a commodities analyst at Commerzbank AG in Frankfurt. ``It's stocks and there are concerns about political stability in Nigeria.''

Nigerian militants killed 12 people in the southern oil city of Port Harcourt in attacks on two police stations and a hotel, the state-run News Agency of Nigeria said yesterday, citing Felix Ogbaudu, the regional police chief.

Violence by militants has reduced Nigeria's output by 20 percent since the start of 2006. About 500,000 barrels a day of production was shut in by militant activity in the Nigeria Delta, the government said in December.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.netAlexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net

Last Updated: January 2, 2008 08:44 EST