Oil rebounds to $124 on dollar weakness

LONDON - Oil rose to $124 a barrel on Thursday as the U.S. dollar weakened against the euro after European Central Bank President Jean-Claude Trichet signalled a rise in interest rates later this year.

By (Reuters)

Published: Thu 5 Jun 2008, 9:43 PM

Last updated: Sun 5 Apr 2015, 1:07 PM

The euro rebounded from three-week lows earlier in the session following the remarks. A weaker dollar tends to make oil and other dollar-denominated commodities more attractive to investors.

"Crude seems to be reacting to hawkish comments from Trichet," said John Kilduff, senior vice president at MF Global in New York.

U.S. crude was up $1.70 to $124.00 a barrel by 1332 GMT, having settled down $2.01 on Wednesday at $122.30, its lowest settlement in almost a month. London Brent added $1.55 to $123.65.

Earlier in the day, prices eased on concern about weakness in oil demand as a growing number of Asian nations struggle to sustain the cost of shielding consumers from record oil prices.

"You have a large layer of global oil demand which is undertaking cuts in subsidies. Right now, that is what's driving the fundamental worries," said Olivier Jakob, analyst at Petromatrix.

India raised retail petrol and diesel fuel prices by about 10 percent and Malaysia hiked petrol prices by 41 percent. Taiwan, Sri Lanka and Indonesia reviewed their subsidies last month.

Rising fuel prices in Asia and weaker fuel consumption in the United States, the world's top consumer, are expected to lead to further reductions in estimates for global oil demand growth in 2008.

The International Energy Agency, adviser to 27 industrialised countries, issues its latest forecasts next week and has said it may lower its 2008 demand projection further.

Analysts who use past price movements to predict future direction were keeping a watch on whether U.S. crude, which hit a record high of $135.09 last month, can remain above $120 a barrel.

"That's going to be a key support level. If it breaks, the market is going to be much weaker," Jakob said.

The latest weekly data on oil inventories in the United States added to bearish sentiment as larger-than-expected rises in products stocks and falling gasoline demand, trumped a big drop in crude.

The U.S. Energy Information Administration reported gasoline inventories rose 2.9 million barrels last week while gasoline demand over the past four weeks slumped 1.4 percent versus last year.

Distillate stocks jumped by 2.3 million barrels, while crude stocks fell 4.8 million barrels.

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