Oil prices bounce back above $113 in volatile trading

Light, sweet crude for June delivery on the New York Mercatile Exchange rose 67 cents to $113.19 a barrel in electronic trading by midday in Europe, up from a low of $111.78 earlier in the session. The contract fell 94 cents to settle at $112.52 a barrel on Thursday.

A stronger U.S. dollar and short covering by professional traders who bought back oil contracts as prices recovered after betting earlier that they would fall further were both seen affecting the market.

As the dollar has recovered this week against the euro and yen, the front-month crude futures contract on the New York Mercantile Exchange has dropped nearly $8 from its high to the benchmark contract's lowest level since April 14.

On Friday, the dollar rose against the 15-nation euro which fell to $1.5458 by midday in Europe, down from $1.5461 late Thursday in New York.

The rise of the dollar has stripped away some of oil's appeal to investors who have been betting that the greenback would continue to falter. When the dollar gains ground, commodities such as oil lose their value as a hedge against inflation, prompting selling. Also, a stronger dollar makes oil more expensive to investors overseas.

The end of a strike that had cut production at an Exxon Mobil Corp. facility in Nigeria, a major U.S. oil supplier, also gave market participants a reason to sell on Thursday. Oil prices jumped last week and early this week on word of the strike, as well as on a separate labor action in Scotland.

The Scotland action, which ended Tuesday, caused the shutdown of a 700,000-barrel-a-day pipeline system that carries about a third of the U.K.'s North Sea crude.

Analysts caution, though, that oil's swoon could be temporary. The dollar's protracted decline has been a major factor behind oil's rise from about $64 a barrel a year ago, and future dollar weakness could easily push crude futures above $120, they say.

The dollar's recent gains have come on a view that the U.S. Federal Reserve is done cutting interest rates; lower interest rates tend to weaken the dollar. The Fed cut its key rate a quarter percentage point on Wednesday, without giving a clear indication of its future plans. With the benchmark federal funds rate at 2 percent, however, investors sense that the Fed can't cut rates much further.