Oil jumped nearly 3 percent to above $70 a barrel on Tuesday, boosted by the weaker dollar and a U.S. government report revising global demand expectations higher amid signs the economy may be approving.
U.S. crude traded up $2.00 to $70.09 a barrel by 2:27 p.m. EDT. London Brent crude gained $1.80 to trade at $69.68 a barrel.
The U.S. Energy Information Administration raised its forecast for 2009 world demand by 10,000 barrels per day from its May report, marking the first time since September the agency has increased its 2009 demand estimate.
The agency also hiked its estimate for demand in top consumer the United States.
The EIA data showing it has raised its world and U.S. oil demand forecast for the first time since September is a sign that things are stabilizing on the demand side, said Phil Flynn, analyst at Alaron Trading in Chicago.
Oil prices have more than doubled since February, rising with equities on signs of a rebound in the economy and expectations of a rebound in fuel demand.
Slumping demand due to the economic crisis knocked oil off record highs near $150 a barrel struck last July.
Further support came as the stock market rose and the dollar fell against major currencies as investors questioned whether the economy had improved enough to justify talk of higher U.S. interest rates by year end.
The weaker dollar makes dollar-denominated commodities cheaper. The Reuters-Jefferies CRB index <.CRB>, a global commodities benchmark, rose in afternoon trade.
Traders were also awaiting U.S. inventory data due out later today from the American Petroleum Institute, which was expected to show a 400,000-barrel draw in crude oil stockpiles, according to an updated Reuters poll.
It will be followed by U.S. Energy Information Administration data on Wednesday.
Societe Generale on Tuesday raised its year-end crude oil price forecasts for 2009 by $8.50, to $65 a barrel, in the third quarter and lifted its fourth-quarter forecast by $11.50, to $72.50, citing higher expected U.S. five-year inflation in a research note.
Historically, the relationship between oil and inflation expectations is much stronger than oil and the dollar, said Mike Wittner, global head of oil research at Societe Generale.
Oil prices are being driven lately more by nonfundamentals than fundamentals, and this (five-year inflationary) nonfundamental factor looks like it's going to be with us for a while.
(Reporting by Matthew Robinson and Gene Ramos in New York, Christopher Baldwin in London and Maryelle Demongeot in Singapore; Editing by Christian Wiessner)