The price of oil reached the highest level in 2009 yesterday, as the dollar retreated and positive economic data pointed to a pick-up in demand for crude, traders said.

Brent North Sea crude hit $73.75, the highest point since October 15 last year, while New York light sweet crude reached a near two-month peak of $71.95.

Oil later fell back slightly but remained strongly higher compared with closing levels on Friday.

Brent North Sea crude for delivery in September was up $1.53 at 73.23 dollars a barrel.

New York's main contract, light sweet crude for September delivery, stood at $71.29 a barrel, a gain of $1.84.

"Crude prices climbed higher... after the dollar continued to depreciate and following an array of better than expected manufacturing data, which further fuelled hopes of an economic recovery," said Nimit Khamar, analyst at Sucden Financial Research.

A weaker dollar can make oil cheaper for buyers of the commodity using other currencies.

In economic data yesterday, it was announced that the US factory sector moved within striking distance of growth in July.

The Institute of Supply Management said its index of the manufacturing sector, also known as the purchasing managers index, rose to 48.9 per cent from 44.8 per cent in June, in another encouraging sign for the recession-hit economy.

That figure was better than the level of 46.5 per cent expected on Wall Street and closer to the 50 per cent level that separates expansion and contraction.

As investors grew bolder on fresh signs of an economic recovery, the dollar slid to an eight-month low against the euro.

The euro is seen as a higher-risk investment than the dollar and tends to strengthen in times of increasing confidence.

Manufacturing activity in the 16 countries using the euro meanwhile rose to the highest level for 11 months in July, another survey showed yesterday in a sign of improved economic health for the eurozone.

Market watchers also digested news of strong manufacturing data out of China and Britain.

While the outlook for oil demand appears promising, crude supplies face a bleak future, a leading economist warned yesterday.

A disastrous energy crunch is looming because most of the major oil fields in the world have passed their peak production, said Fatih Birol, chief economist with Paris-based International Energy Agency.

In an interview with Britain's Independent newspaper, he added that such an "oil crunch" within the next five years could jeopardise recovery from the global recession.

Higher oil prices brought on by a rapid increase in demand and a stagnation, or even decline, in supply could derail the recovery, Birol said.

Oil prices had closed higher on Friday, buoyed by data from the Commerce Department that showed the US economy shrank at an annualised rate of 1.0 per cent in the three months to June.

That was less than the 1.5 per cent contraction most analysts had expected, renewing hopes that the world's biggest economy was likely recovering from a recession that began in December 2007.

The United States is the world's number one energy user and any improvement in its economy is seen as a boost to oil demand.