Crude oil futures climbed on Thursday as the dollar fell on speculation that the European Central Bank may raise interest rates next month, pressured by inflation.

Despite keeping interest rates steady at 4 percent, the ECB President Jean-Claude Trichet said at a press conference in Frankfurt today, that a quarter of a percentage point rise in July was possible but not certain.

The dollar slumped following Trichet's comments. The euro was trading last 0.91 percent up at $1.5593 per dollar by 3:41 p.m. from $1.5440 yesterday.

Demand for commodities grows when the dollar weakens since investors buy to compensate for inflation at the time since commodities denominated in dollars become cheaper for foreign buyers.

Crude oil futures for July delivery rose $5.46, or 4.46 percent to 4127.76 a barrel by 3:08 p.m. in the New York Mercantile Exchange. Earlier prices fell as low as $122 a barrel.

Brent crude futures for three months delivery rose $3.95, or 3.23 percent, to $126.25 a barrel at the London ICE Futures Exchange.

Crude prices hit a new record high of $135.09 a barrel in May 22 in New York.

Earlier this week, prices fell after Ben Bernanke, the U.S. Federal Reserve Chairman, addressed inflation risks suggesting that the central bank will end its run of interest rate cuts to help the dollar gain strength.

Since the Fed started to cut interest rates on September 18 to stave off an economic recession, crude oil has risen 52 percent and the euro has increased 11 percent against the dollar during the same period.

However, high prices and weak fuel consumption in the United States may curb global demand for oil, according to some analysts.

Yesterday the Energy Department said gasoline demand was down by 1.4 percent compared to the same period last year. In its report, U.S. gasoline inventories gasoline jumped the most since February by 2.94 million barrels last week, signaling lower demand in the top consumer of oil in the world. Gasoline prices at the pump have surpassed $4 a gallon in several cities.

This is when demand normally increases by 1 or 2%. said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago in a newsletter. This is a sure sign of demand destruction and a sign that yes consumers are running out of gas.

The International Energy Agency will release its latest 2008 demand forecast next week and speculators believe the agency will lower its projection. The agency is an advisor to 27 countries.