Oil rose towards $102 a barrel Thursday, trading within sight of its record high, as the U.S. dollar sank to a new low and after militant attacks cut supply from Nigeria, Africa's top exporter.
Investors have pumped cash into commodities in recent weeks, betting on signs that the U.S. Federal Reserve will keep cutting rates to prop up the economy. The dollar fell to a record low versus the euro Thursday.
"The energy complex is a dollar/inflation story as investors have moved into commodities as a hedge against inflation," said Nauman Barakat, senior vice president at Macquarie Futures USA.
"The ever-weakening dollar, upward inflationary pressures and geopolitical tensions are having a greater impact on the market than the fundamentals."
U.S. light, sweet crude rose, having hit a record high of $102.08 on Wednesday. London Brentcrude gained.
U.S. crude is nearing the inflation-adjusted high of $102.53 hit in 1980, according to data from the International Energy Agency in Paris.
The U.S. dollar dropped to an all-time low versus the euro after the latest estimate of U.S. fourth-quarter gross domestic product came in weaker than analysts had forecast, and a report showed a surprisingly big jump in initial weekly jobless claims.
Prices of dollar-denominated commodities tend to rise when the currency weakens.
Also boosting prices, output at Nigeria's Brass River crude stream was cut by 20,000 barrels per day this week due to sabotage on a pipeline, Italian oil firm Agip said.
The leak was fixed on Wednesday and output restored.
The setback at Brass River comes on top of about 515,000 bpd of supply shut down in Nigeria.
Expectations that the Organization of the Petroleum Exporting Countries will not raise output at its meeting on March 5 also supported oil, as did winter fuel demand in the United States and Europe.
OPEC most likely will decide at next week's meeting to keep its oil output steady, the head of Libya's OPEC delegation, Shokri Ghanem, said Thursday.
Analysts who use past price movements to predict future direction said a move a few dollars higher for U.S. crude, also known as WTI, could lead to further gains.
"With the dollar in freefall, we would be concerned that if WTI rallies above $102-$103 it would trigger a further surge towards $110-$115," Barclays Capital technical analysts said in a report.
"For the time being, we are hopeful that $102-$103 will continue to cap and dip back towards $99, or even $97, before a more important test of the upside occurs."
Oil fell early in the session due to bulging fuel stocks in the United States. U.S. crude stocks rose last week for a seventh week, a government report showed Wednesday.
"In terms of fundamentals, it's hard to justify the ferocity of the market's rally," said Robert Laughlin of MF Global. "The weakness in the U.S. economy is now affecting demand."