Oil prices rebound above $111 on pipeline repair, weak dollar
Oil prices rebounded Monday on reports that a U.S. oil pipeline was shut for repairs and as the dollar weakened again against other currencies.
Light, sweet crude for May delivery on the New York Mercantile Exchange rose $1.02 to $111.16 a barrel in electronic trading by afternoon in Europe. The contract rose 3 cents to settle at $110.14 a barrel Friday.
Analysts said reports of a temporary shutdown to repair a small leak in Shell's Capline pipeline system, which transports oil into the U.S. Midwest, helped boost prices, which had fallen earlier in Monday's session.
"We would expect repairs to be done quickly but until confirmation of completion this will be a supportive flag to watch for," said Olivier Jakob of Petromatrix in Switzerland in a research note.
A weaker dollar also contributed to the rebound in oil prices.
By the afternoon in Europe, the 15-nation euro bought $1.5857, up from the $1.5835 it bought in New York late Friday.
The dollar also slumped to 100.74 Japanese yen, down from 101.01 yen in late Friday trading.
Crude oil's recent run above $100 a barrel has been largely attributed to a steadily depreciating U.S. currency, because a weakening dollar attracts investors to commodities as a hedge against inflation.
The Group of Seven industrialized nations said in a statement Friday that "there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability."
The group pledged to closely monitor the situation and "cooperate as appropriate."
"The G-7's warning against excessive currency fluctuations was interpreted by the market as saying the dollar's fallen way too much and too fast," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
"This comment may underpin the U.S. dollar in the near term and thereby reduce the interest of financial investors to pile money into oil and other commodities," he said.
Crude prices have also come under pressure after the International Energy Agency last Friday lowered its global oil demand forecast for the year by 310,000 barrels a day to 87.2 million barrels a day, citing lower economic output expectations in the U.S. and elsewhere.
JBC Energy in Vienna, Austria, called the IEA report the "strongest downward monthly revision in years," and also noted that gasoline consumption in the United States was expected to fall lower "for the first time in years."
More negative U.S. economic data also appeared to have taken steam out of oil's precipitous price rise this week. The Commerce Department reported last week the first decline in oil imports in a year -- a possible sign that high prices and an economic downturn were hurting crude sales.
"The weight of the gloomy economic picture in the U.S. and to a certain extent other countries ... is getting heavier, and it's putting a heavy lid on oil pricing," Shum said. However, he said, oil's movements continue to be largely influenced by fluctuations in the dollar.
Nymex crude "continues to be tightly correlated" to the movements of the dollar, Petromatrix's Jakob said.
"The main reason why the correlation is so strong is that it has become a self-fulfilling trade with very few volunteers to trade against it until it is proven broken."
In other Nymex trading, heating oil futures rose 0.34 cent to $3.2009 a gallon while gasoline prices dropped 0.21 cents to $2.8052 a gallon. Natural gas futures climbed 13.7 cents to $10.038 per 1,000 cubic feet.
In London, Brent crude futures rose 44 cents to $109.19 a barrel on the ICE Futures exchange.