Oil prices higher amid weak dollar

NEW YORK (AFP) – Oil prices rose Monday as a weaker dollar helped boost demand for commodities.

New York's main contract, light sweet crude for January delivery, rose nine cents to 77.56 dollars a barrel.

London's Brent North Sea crude for January delivery added 26 cents to 77.46 dollars per barrel.

Prices came off from their intraday highs on concerns over demand amid worries over economic recovery prospects.

"While oil, like other consumables, has benefitted from the store of value theme, part of the rationale behind that has been the expectation of rising demand as a consequence of recovery," said analyst Mike Fitzpatrick of MF Global.

"If that foundation is questioned, the house of cards comes apart," he said.

The dollar weakened Tuesday, prompting a run on commodities and equities in early trading, with traders reacting to exit strategy comments at the weekend from a Federal Reserve official.

Comments by Federal Reserve Bank of St. Louis chief James Bullard that he would prefer to keep the central bank's asset-buying program active beyond its current cut-off date pushed the dollar lower, analysts said.

An extension of the program, widely considered a negative factor for the US currency, would give more flexibility to US policymakers, he said.

A weaker greenback makes crude oil and other commodities, such as gold, cheaper for holders of other currencies, driving demand.

Crude futures were likely to stay under 80 dollars because of high oil inventories in the United States, the world's biggest energy-consuming nation, analysts said.

World oil demand meanwhile rose between July and September after falling during the previous six quarters, the Centre for Global Energy Studies said in a monthly report published on Monday.

The London-based CGES added that global oil demand was set to record its first year-on-year gain during the fourth quarter, although crude oil prices should continue to trade between 70 and 80 dollars a barrel.

"Oil demand finally seems to have turned the corner," the consultancy said in its November study.

"After falling for six successive quarters, global oil demand in the third quarter of this year was higher than during the previous quarter, although still well down on the same quarter last year.

"In the fourth quarter, global oil demand is now expected to show its first year-on-year increase since the second quarter 2008, before the collapse of (US investment bank) Lehman Brothers and the onset of recession in the developed countries.

Oil prices slumped from record highs of above 147 dollars reached in July 2008 to about 32 dollars in December last year, as the economic downturn hit world demand for energy.

Crude futures have slowly won back ground as major industrialized nations emerge from recession.