Oil in slight retreat start the new year

The oil market kicked off 2009 feebly on Friday, falling partly in reaction to a sharp rally late on Wednesday.

U.S. light, sweet crude fell 30 cents to $44.30 a barrel by 9:30 a.m. ET, reversing part of Wednesday's $5.57 a barrel gains. Oil fell as much as 7% earlier in the day, touching a low of $41.05.

In 2008 oil initially rose by more than $50 to touch a record peak of $147 before falling by more than $110.

On the last trading day of 2008 it surged 14% after weekly U.S. data showed a decrease in refinery activity and an unexpected 500,000-barrel rise in crude stocks in the world's biggest oil consumer.

Refined product inventories also rose, though less than analysts expected. Gasoline stockpiles were up 800,000 barrels, versus a forecast of 1.5 million barrels, while distillates rose by 700,000 barrels, versus an expected 1.1 million barrels.

"The recent crop of demand side indications for oil has been rather ambiguous. In itself, that is something of a change, given a fairly long period during which the demand side numbers have been weakening fairly consistently," Barclay's Capital wrote in a note to investors.

Analysts said economic factors were pushing markets down while geopolitical events were serving as support.

Israel sealed off the occupied West Bank on Friday, bracing for protests and retaliatory violence a day after it killed a senior Hamas leader in an air strike on his Gaza home.

Oil markets have also watched cautiously the dispute between the world's biggest non-OPEC oil exporter, Russia, and its neighbors over natural gas supplies.

Russia shut off gas to its neighbor Ukraine on Thursday, after a contract dispute, but said it had increased supplies to other European states to try to reassure its premium-paying customers.

The row could stir new doubts about Moscow's reliability as an energy supplier and fuel suspicions in the West - already running high since Russia's war with Georgia last August - that the Kremlin bullies its pro-Western neighbors. However, similar past disputes rarely had an impact on oil flows.