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Oil up above US$80 on weak dollar, lower inventories

OIL prices rose to above US$80 a barrel yesterday, helped by the weaker dollar and a report pointing to a drop in U.S. crude supplies.

By mid-afternoon in Europe, benchmark crude for December delivery was up 75 cents to US$80.35 a barrel in electronic trading on the New York Mercantile Exchange. The contract gained US$1.47 to settle at US$79.60 on Tuesday.

U.S. oil inventories dropped last week, the American Petroleum Institute said late Tuesday. Crude stocks were seen falling 3.3 million barrels while analysts had expected a rise of 1.3 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The Energy Information Administration, is scheduled to release its supply data - considered the market benchmark - later on yesterday.

Crude has fallen from its 2009 high of US$82 a barrel last month on investor doubts about the strength of the U.S. economy. Some analysts say the oil price could fall further if a monthly U.S. unemployment report on Friday confirms the number of jobless continues to swell.

"We still feel that a decline toward the US$75 area could be forthcoming as this week proceeds," Galena, Illinois-based Ritterbusch and Associates said in a report.

Others agreed, tying oil's current rally to speculative investments linked to the rise in the price of gold, which neared US$1,100 an ounce on large purchases by the central bank of India.

"The underlying problem for crude remains the same - it needs demand in the physical world to be a closer match to the demand in the financial world," said Olivier Jakob of Petromatrix in Switzerland.

Analysts have also noted the usual correlation between the dollar and oil prices, with oil becoming cheaper and more attractive to international investors when the dollar falls.

The euro bought US$1.4781 on yesterday, up from US$1.4702 late yesterday in New York. The British pound also rose, to US$1.6528 from US$1.6402.

Later in the day, markets will be watching the Federal Reserve's assessment of the U.S. economy after its meeting on interest rates, which are expected to be left unchanged near zero.

"This might provide an interesting signal regarding economic prospects of the world's largest oil consuming nation and it will be of even more interest as it impacts the U.S. dollar," said analysts at Sucden Financial Reserach in London.

In other Nymex trading, heating oil rose 1.65 cents to US$2.0898 a gallon. Gasoline for December delivery advanced 2.25 cents to US$2.0229 a gallon. Natural gas for December fell 1.5 cents to US$4.907 per 1,000 cubic feet.

In London, Brent crude for December delivery rose 67 cents to US$78.78 on the ICE Futures exchange.


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