Oil rose towards $101 a barrel on Thursday, trading within sight of its record high, as the U.S. dollar sank to a new low and after a supply cut in Nigeria, Africa's top exporter.
Investors have pumped cash into commodities in recent weeks, betting on signs the U.S. Federal Reserve will keep cutting rates to prop up the economy. The dollar fell to a record low versus the euro on Thursday.
The energy complex is a dollar/inflation story as investors have moved into commodities as a hedge against inflation, said Nauman Barakat, senior vice president at Macquarie Futures USA.
The ever-weakening dollar, upward inflationary pressures and geopolitical tensions are having a greater impact on the market than the fundamentals.
U.S. crude rose $1.31 to $100.95 a barrel by 10:00 a.m. EST, having hit a record high of $102.08 on Wednesday. London Brent crude gained $1.24 to $99.53.
Also boosting prices, output at Nigeria's Brass River crude oil stream was cut by 20,000 barrels per day this week due to sabotage on a pipeline, Italian oil firm Agip (ENI.MI: Quote, Profile, Research) said. The leak was fixed on Wednesday.
The setback at Brass River comes on top of about 515,000 bpd of supply shut down in Nigeria. Earlier, oil traders said the Brass River output loss was between 50,000 bpd and 80,000 bpd.
Pressuring the dollar, U.S. fourth quarter gross domestic product was revised lower and a surprisingly big jump in initial weekly jobless claims added to concern about the economy.
Expectations that the Organization of the Petroleum Exporting Countries will not raise production at its meeting on March 5 also supported oil's decline, as did winter fuel demand in the United States and Europe.
OPEC's president, Chakib Khelil of Algeria, said on Tuesday members would not raise output, in part because of concern about a demand slowdown.
Analysts who use past price movements to predict future direction said a move a few dollars higher for U.S. crude, also known as WTI, could lead to further gains.
With the dollar in freefall, we would be concerned that if WTI rallies above $102-$103 it would trigger a further surge towards $110-$115, Barclays Capital technical analysts said in a report.
For the time being, we are hopeful that $102-$103 will continue to cap and dip back towards $99, or even $97, before a more important test of the upside occurs.
Oil fell earlier on Thursday as bulging stockpiles in the United States added to concern over its economy. U.S. crude stocks rose last week for a seventh week, a government report showed on Wednesday.
In terms of fundamentals, it's hard to justify the ferocity of the market's rally, said Robert Laughlin of MF Global. The weakness in the U.S. economy is now affecting demand.
(Reporting by Alex Lawler and Felicia Loo, editing by James Jukwey)