Oil climbs above $102 on weaker U.S. dollar

Oil prices climbed above $102 a barrel Tuesday as talk of more financial aid for Greece helped weaken the U.S. dollar and traders worried about turmoil in Libya and the Middle East.

By early afternoon in Europe, benchmark oil for July delivery was up $1.81 to $102.40 a barrel in electronic trading on the New York Mercantile Exchange.

The benchmark contract last settled Friday up 36 cents at $100.59. Markets in the U.S. were closed Monday for the Memorial Day holiday.

In London, Brent crude for July delivery was up $1.64 to $116.32 a barrel on the ICE Futures exchange.

Crude has risen from $96 last week amid a depreciating U.S. currency. The euro rose to $1.4402 on Tuesday from $1.4287 late Monday.

"Crude oil prices have surged on reports that Germany has given up on its principles and would allow a second bailout of Greece," said Olivier Jakob of Petromatrix in Switzerland.

When the dollar weakens, it makes oil cheaper for investors holding other currencies and usually boosts prices.

Reports of the temporary closure for repairs of a pipeline transporting oil from Canada to Cushing, Oklahoma — where crude trade on Nymex is stored — also helped support prices.

Analysts, meanwhile, were eyeing the situation in Libya and Yemen and its effects on oil output.

In Libya, NATO continued bombing runs aimed at weakening Moammar Gadhafi's military and giving the outgunned rebels a chance in their battle against the longtime ruler.

"Hence, a sudden return of Libyan oil production is out of the question," said a report from Commerzbank in Frankfurt.

Fighting between government troops and forces loyal to a powerful tribal leader in Yemen, which borders Saudi Arabia, the world's largest oil producer, added to the concerns.

"The situation in Yemen appears to be escalating," Commerzbank said. "Consequently, there is a high risk of unrest destabilizing the entire region."

Traders are also eyeing the U.S. economy, where recent manufacturing and consumer spending indicators have been less than robust.

However, sluggish economic indicators are a mixed signal for oil traders. A weaker economy would suggest less demand for crude, but it also tends to reduce confidence in the dollar, and a falling U.S. currency usually boosts oil prices.

"The strength and sustainability of the U.S. recovery is in question," The Schork Group said. "But the Catch-22 is poor economic headlines are actually supporting higher oil prices vis-a-vis the U.S. dollar."

Oil has dropped from a 30-month high near $115 a barrel on May 2.

In other Nymex trading in June contracts, heating oil gained 3.83 cents to $3.0288 a gallon and gasoline added 3.3 cents at $3.125 a gallon. Natural gas futures jumped 11.5 cents to $4.633 per 1,000 cubic feet.