Oil rises on weak dollar

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Oil rose by as much as $1 on Tuesday as a weaker dollar rekindled some of the appeal of commodities and concern about Europe’s deteriorating debt crisis eased temporarily.

Brent added 65 cents to $112,90 by 0707GMT after touching $113,30, having dropped 11% from this year’s April peak above $127. US crude climbed 52 cents to $88,71 a barrel, off an earlier high of $89,21.

Asian stocks steadied and the euro held above a seven-month low against the dollar after a report that Italy may get financial support from China lifted Wall Street in late trade but did nothing to ease
fears Europe is descending into a banking crisis.

Traders were wary about the modest oil rally as markets remain prone to swings in risk appetite, with policy makers struggling to reassure investors Greece can stay afloat.

“This is a shallow bounce because of Wall Street ending higher, so there is some confidence returning, but I don’t think anybody would be putting any big positions given the global situation,” said Victor Say, an analyst at Informa Global Markets in Singapore.

“You never know what is going to blow up in Europe next.”

US crude futures rose on Monday, propped up by spread trading with Brent crude, which slid on concerns the eurozone debt crisis could weaken Europe’s economy and dent oil demand.

On Tuesday, the dollar weakened about 0,7% against a basket of currencies, restoring some of the shine of commodities as an alternative investment.

Brent’s premium against US crude benchmark West Texas Intermediate remained below $24, down from $25,53 at the end of last week. It reached a record $27,23 on September 6.

US Treasury Secretary Timothy Geithner makes a one-day trip to Poland this week for an unprecedented meeting with eurozone finance ministers as growing fears of a potential Greek debt default rip into Europe’s banking sector.

“The European debt, especially the Greek situation, is not bound to go away so soon. That, along with the slowing of the global economy, means you will see some shrinking on demand, which will weigh on oil prices,” said Say.

The Organisation of the Petroleum Exporting Countries (Opec) cut its forecast for global oil demand growth next year because of a worsening economic outlook and said a disappointing economic performance in top consumer the United States could further weigh on fuel use.

Opec also said concerns were easing about a tight oil supply and demand balance and it expected Libyan oil output to return to full capacity in less than 18 months, more quickly than some estimates.

World oil demand will increase by 1,06 million barrels per day (bpd) in 2011, Opec said in the report, 150 000bpd less than it estimated last month. The growth estimate for next year was lowered by 40 000bpd to 1,27 million bpd.