By Grant Smith Dec. 30 (Bloomberg) -- Crude oil was little changed, heading for its biggest annual gain in a decade, on forecasts that U.S. stockpiles are narrowing while unrest in Iran sows concerns supply will be disrupted. U.S. crude inventories likely fell by 1.85 million barrels last week, according to analysts surveyed by Bloomberg News before an Energy Department report due today at 10:30 a.m. in Washington. Iran, holder of the world’s second-largest crude reserves, detained about 1,000 people after the biggest anti- government demonstrations in six months. “Stocks are showing the market is getting towards a more balanced situation, though it will take time,” said Alexandra Kogelnig, a consultant with JBC Energy GmbH in Vienna. “Tensions in Iran are always a factor even if there is nothing immediately happening, as if something major happens it will affect exports.” Crude oil for February delivery was at $78.73 a barrel, 14 cents lower in electronic trading on the New York Mercantile Exchange, as of 12:57 p.m. London time. It earlier rose as much as 32 cents, or 0.4 percent, to $79.19 a barrel. Futures are set for a 77 percent gain this year, the biggest since 1999. Prices have tripled in the past decade. Iran yesterday accused Western countries of inciting clashes on Dec. 27 between opposition supporters and security forces in the capital Tehran and other cities, which killed at least eight people, according to state media reports. “After strong gains over the past year, there’s a propensity to lock in profits and reposition for 2010,” said Mark Pervan, a senior commodity strategist at ANZ Banking Group Ltd. in Melbourne. “Now, I think you’re going to see sideways movement.” Dollar Gains A stronger dollar is limiting gains in oil prices by reducing the appeal of commodities as an investment. The dollar may rise against the euro for a third day before a report economists said will show U.S. manufacturing expanded in December for a fifth month, adding to signs the economy is gaining momentum. The dollar traded for $1.4341 against the euro at 9:38 a.m. London time. A “major Arctic wave” heading for the U.S. will likely cause millions of households to boost heating fuel use this winter, according to State College, Pennsylvania-based AccuWeather.com. Consumer Confidence U.S. inventories of crude oil probably declined from 327.5 million the prior week, according to the Bloomberg survey of 14 analysts before the Energy Department’s report. Gasoline supplies are forecast to climb by 1 million barrels, and distillates, a category that includes heating oil and diesel, to fall by 2.23 million. The American Petroleum Institute said yesterday inventories of crude oil rose 1.73 million barrels last week to 330.5 million. Refinery utilization rates fell to 78.2 percent in the week ended Dec. 25 from 78.4 percent a week earlier, according to the industry-funded API. “It seems the demand outlook is the very big swing variable in the oil market at the moment,” said Ben Westmore, a minerals and energy economist at National Australia Bank, in a Bloomberg Television interview. “If you couple that with the fact that you have a large supply overhang, it’s difficult to see the oil price moving higher in a trend sense.” Brent crude for February settlement rose for a sixth day, advancing as much as 56 cents, or 0.7 percent, to $78.20 a barrel on London’s ICE Futures Europe exchange. To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net

Source