Oil prices rose toward $72 a barrel on Wednesday, extending gains of more than $3 the previous day as a falling dollar spurred investors to buy commodities such as oil as a hedge against inflation.

The dollar fell to near the year's low against a basket of currencies, outweighing the potentially bearish impact of expectations that OPEC ministers will maintain output unchanged at a meeting underway in Vienna.

U.S. crude for October delivery was up 41 cents at $71.51 a barrel by 1305 GMT (9:05 a.m. EDT). London Brent crude rose 68 cents to $70.10 a barrel.

It is completely priced in that OPEC will leave output unchanged, oil broker Christopher Bellew of Bache Financial said.

It is going to be gold, the dollar and equities again that will move the market, he said.

Spot gold prices held near $1,000 per ounce on Wednesday and European equities were stronger.

So far, none of the 12 OPEC members has stated any need to cut production as prices around $71 a barrel and signs of a strengthening world economy have shifted the focus away from still sluggish fuel demand.

With the price ranging between $68 and $73, what else do you want? The price, everybody likes, consumers and producers, Saudi Arabian Oil Minister Ali al-Naimi told reporters when asked if OPEC needed to change its output policy.

Their meeting starts at 1930 GMT.

Crude prices are up 50 percent so far this year although they are still less than half their peak struck in July 2008.

The producer group will likely call for stricter compliance with existing supply cuts.


Later on Wednesday, the market will get its first steer on U.S. crude stocks with numbers from the American Petroleum Institute due at 2030 GMT (4:30 p.m. EDT), followed by the Energy Information Administration's data on Thursday at 1500 GMT (11 a.m. EDT). Both have been delayed a day by Monday's Labor Day holiday.

A Reuters poll of analysts showed expectations of a 1.5 million barrel drawdown in crude stocks, a 700,000 barrel increase in distillate supplies and a 1.4 million barrel decline in gasoline inventories.

On the fundamental front, Valero , the biggest refiner in the United States, has decided to sack hundreds of workers and idle several major processing units, struggling with slumping fuel demand in the economic downturn.

Traders were keeping an eye out as Tropical Storm Fred formed in the eastern Atlantic Ocean on Monday with top winds of 40 mph, but did not immediately threaten any land, the U.S. National Hurricane Center said.

(Additional reporting by Nick Trevethan in Singapore; editing by Keiron Henderson)