Oil up to near $80 as the dollar weakens

Oil prices rose to near $80 a barrel Wednesday as the effects of a weaker dollar trumped a report pointing to a rise in US oil inventories. (Watch)

By early afternoon in Europe, benchmark crude for December delivery was up 58 cents to $79.63 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 38 cents to settle at $79.05 on Tuesday.

Analysts said changes in the price of oil were tied to how global stock markets were doing and the dollar's fluctuating exchange rate.

``This has nothing do to with any oil supply and demand fundamentals,'' said Olivier Jakob of Petromatrix in Switzerland.

Late Tuesday, a survey from the American Petroleum Institute showed a rise in US oil inventories last week. Crude stocks increased 1.2 million barrels while analysts had expected a rise of 1.0 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The Energy Information Administration, the market benchmark, is scheduled to release its supply data on Thursday.

Crude traders were watching the dollar closely, as a weaker US currency makes oil cheaper for investors buying the commodity with non-dollar currencies.

The euro rose to $1.5026 from $1.4978 late Tuesday in New York. ``Crude prices continue to be driven by the dollar and sentiment,'' Societe Generale analysts said in a report. ``The dollar will be, on balance, moderately bullish for crude oil prices.''

Crude has bounced near $80 a barrel for the last few weeks as traders eyed mixed US economic data and the threat of Ida, a one-time hurricane in the Gulf of Mexico that weakened significantly before reaching oil installations near the Gulf Coast on Tuesday.

``The reaction to the data and events has been knee-jerk in nature, and not well thought out by market participants,'' the Societe Generale analysts said.

Oil has risen from $32 a barrel since December, and some analysts expect the upward trend to continue.

``I wouldn't be surprised to see crude trading at $100 before you know it,'' said Aaron Smith, who uses technical analysis to help manage more than $1 billion of assets for investment firm Superfund Financial in Singapore. ``Certainly 20 to 30 percent upside from here is a much more likely proposition than the opposite scenario.''

In other Nymex trading, heating oil was steady at $2.05 a gallon. Gasoline for December delivery fell 0.55 cent to $1.97 a gallon. Natural gas for December delivery was steady at $4.47 per 1,000 cubic feet.

In London, Brent crude for December delivery rose 69 cents to $78.19 on the ICE Futures exchange.