HOUSTON - EXACTLY one year after crude eclipsed US$100 a barrel for the first time, 2009 trading began on Friday with prices roughly half their year-ago levels, and some believe oil could be headed even lower.

Oil markets kicked off the new year with crude climbing above US$46 a barrel. A variety of factors were likely at work, including continued violence in Gaza and expectations that Opec would carry out its largest production cut ever to stem historic price declines.

Oil market activity was also light as many traders took a long holiday weekend, and that can lead to price swings.

'I have a feeling, more than anything, it's the thin trading conditions pushing the price higher,' said Mr Peter Beutel of energy consultancy Cameron Hanover.

Light, sweet crude for February delivery rose US$1.74 to settle at US$46.34 a barrel on the New York Mercantile Exchange.

In London, February Brent crude rose US$1.32 to settle at US$46.91 a barrel on the ICE Futures exchange.

Oil's surge into triple digits for the first time one year ago was the start of a climb that would peak above US$147 a barrel by July. Since then, amid fears of a prolonged global recession and crumbling worldwide demand, crude prices have plunged more than 70 per cent.

'Thank goodness that's over!' Raymond James & Associates said in a note to clients on Friday, summing up what many traders feel after the most volatile year since crude futures were first offered on Nymex in 1983.

The same gloomy economic data that drove prices into the mid-$30s in the final month of the year continued into 2009.

A private group's measure of manufacturing activity fell more than expected in December, hitting the lowest reading in 28 years as new orders and employment continue to decline. The Institute for Supply Management, a trade group of purchasing executives, said Friday its manufacturing index fell to 32.4 in December from 36.2 in November. Wall Street economists surveyed by Thomson Reuters had expected the reading to fall to 35.5.

Any reading above 50 signals growth, while a reading below 50 indicates contraction. The index has fallen steadily for the last five months.

A weakened manufacturing sector suggests demand for energy will not rebound any time soon.

Activity in the US oilfield already reflects expectations for anaemic demand. Baker Hughes Inc reported on Friday the number of rigs actively exploring for oil and natural gas in the United States fell by 98 last week to 1,623. That's nearly 16 per cent fewer rigs at work than when oil prices peaked in July, and 9 per cent below the year-ago figure.

The February contract for crude rose US$5.57 on Wednesday, the last trading day of 2008, to settle at US$44.60 after Russia threatened to cut off natural gas supplies to Ukraine. Russia followed through with that threat on Thursday, though both countries pledged they would keep supplies to the rest of Europe flowing.

As of late Friday afternoon, no interruptions outside Ukraine were reported.

Analyst Olivier Jakob of energy analysis firm Petromatrix in Switzerland said Ukraine has enough reserves to avoid an immediate risk to its supplies, as long as both parties find an agreement by the end of next week.

'If there is a disruption in natural gas supplies to Europe, then you will see an increase in the usage of oil instead of natural gas. It will have an impact on oil prices,' Mr Jakob said.

The European Union depends on Russia for about a quarter of its gas, with about 80 per cent of that delivered through pipelines controlled by Ukraine.

Concerns that the week-old conflict between Israel and Hamas in Gaza could disrupt supplies in the oil-rich Middle East helped keep prices from falling further.

The Organization of Petroleum Exporting Countries, which accounts for about 40 per cent of global supply, has announced production cuts totaling more than 4 million barrels per day in the last few months.

Analysts say crude's direction in the early part of 2009 will be linked largely to whether the cartel adheres to the new quotas.

In other Nymex trading, gasoline futures rose 4.85 cents to US$1.11 a gallon. Heating oil rose 3.8 cents to settle at US$1.48 a gallon, while natural gas for February delivery jumped 24.9 cents to US$5.971 per 1,000 cubic feet. -- AP