Oil prices rose on Tuesday as investors bought commodities to hedge against a weaker dollar and the U.S. government forecast an increase in world oil demand.
The U.S. Energy Information Administration raised its outlook for world oil demand during the fourth quarter and for 2010, on expectations of economic recovery in Asia.
EIA raised its global oil demand estimate by 170,000 barrels a day for the fourth quarter and said it expected consumption to rise by 1.1 million bpd next year, versus earlier expectations of a 910,00 bpd rise.
U.S. crude rose 47 cents to settle at $70.88 a barrel, after touching a two-week high of $71.97 earlier. In London, Brent crude settled up 52 cents at $68.56.
Slumping demand due to the economic crisis has helped push crude prices off record highs near $150 a barrel struck in July 2008.
U.S. retail gasoline demand last week jumped 7 percent from the same period last year and rose 0.6 percent from the previous week, according to a MasterCard SpendingPulse report released on Tuesday.
Further support came as the U.S. dollar dropped after Australia's Central Bank unexpectedly raised interest rates, a move investors took as a signal world economies may recover soon, potentially boosting fuel demand. <.DXY>
The dollar also weakened after Britain's Independent newspaper reported that major oil exporters were in secret talks to abandon the greenback as the currency they use to price oil, citing anonymous sources. Major oil producers, including top exporters Saudi Arabia and Russia, immediately denied the report, however.
Oil and other commodities denominated in dollars for global trading tend to rise when the U.S. currency falls as they become cheaper for holders of other currencies. A move away from dollar-based pricing of the world's leading commodity could further weaken the greenback.
Iran, OPEC's No. 2 producer, moved away from pricing oil in dollars this year.
Iran's success at moving to a euro basis for its oil sales ... sparked reports about a possible broader shift away from dollar-based pricing, said Tim Evans, energy analyst at Citi Futures Perspective in New York.
But it looks as though other major oil exporters are sticking with the U.S. dollar, at least for now.
Stock markets also rose Tuesday, supporting prices further. <.EU>
It's all about the dollar for commodities, and it's all about the dollar for equities, said Chris Jarvis, senior analyst at Caprock Risk Management in New Hampshire.
Optimism that fuel demand will recover is helping boost oil prices, but most analysts still expected data to show that U.S. crude oil inventories rose last week.
EIA data will likely show that U.S. crude stocks grew by 2.2 million barrels in the week to October 2, as refinery utilization and feedstock usage dipped on poor refining margins, according to the average estimate of 14 analysts polled by Reuters.
Weak demand data is stopping prices rallying and maybe fund support is stopping it sinking, said Christopher Bellew, an oil broker at Bache Commodities in London.
The American Petroleum Institute was to release its inventory report on Tuesday at 4:30 p.m. (2030 GMT), while the EIA will publish its supply data on Wednesday.
(Additional reporting Gene Ramos in New York and Christopher Johnson and Joe Brock in London; Editing by Walter Bagley)