Oil hits five-week high on U.S. cold, optimism

NEW YORK (Reuters) - Oil rose on Monday to touch a five-week high over $79 a barrel as expectations of colder weather in the United States and signs of economic recovery boosted the outlook for fuel demand.

U.S. crude traded up 95 cents from Thursday's close to $79.00 by 11:15 a.m. EST in thin trade, after earlier touching $79.12, the highest since November 23. Oil markets were shut on Friday for the Christmas holiday. Brent crude rose 95 cents to $77.26 a barrel.

Oil has climbed more than 12 percent from a dip below $70 two weeks ago on expectations of rising consumption and falling inventories in the United States, where companies have been drawing down stockpiles for end-year tax purposes.

"There were some strong draws in the stocks last week and it is cold in the U.S.," said Olivier Jakob, analyst at Petromatrix. "But the volumes are very light."

Temperatures in the U.S. Northeast -- the world's largest heating oil market -- were expected to average above normal on Monday before dipping to below normal through Friday, private forecaster DTN Meteorlogix said.

Oil has edged toward the upper end of the $70-$80 range that Saudi Arabia, the largest exporter in the Organization of the Petroleum Exporting Countries, has said is comfortable for producers, consumers and investors.

U.S. stocks rose modestly as rising commodity prices boosted resource companies and retailers gained after data pointed to a better performance for the key holiday shopping season. <.N>

Signs of China's economic recovery and a row between Russia and Ukraine over energy added to the supportive backdrop for prices.

Profits at Chinese industrial companies returned to growth in January through November, offering clear evidence of a stronger recovery for the country's businesses.

Russia's pipeline monopoly blamed Ukrainian politicians for setting new "unacceptable" terms for oil transit via the port of Yuzhny, saying it will cut supplies if no quick deal was reached.

But the head of Gazprom said he expected Ukraine to pay in full for December gas deliveries and did not foresee a repeat of New Year gas rows that have cut supply to Europe in the past.

(Reporting by Alex Lawler in London, Matthew Robinson and Robert Gibbons in New York; Osamu Tsukimori in Tokyo; Editing by Marguerita Choy)