Oil above $72 on weakening dollar

Oil prices rose above $72 a barrel Tuesday as a weakening U.S. dollar offset concerns about the strength of the global economic recovery.

By early afternoon in Europe, benchmark crude for March delivery was up 40 cents at $72.29 a barrel in electronic trading on the New York Mercantile Exchange. The contract gained 70 cents to settle at $71.89 on Monday.

Traders often buy commodities such as oil as a hedge against inflation and a weaker dollar and sell them when the U.S. currency rises. Oil, which is priced in dollars, become less expensive in other currencies when the greenback weakens.

The euro bought $1.3718 in European trading, up from $1.3701 late Monday in New York.

Investors nonetheless remain concerned about swelling debt levels in Europe, high unemployment in the U.S. and fears of Chinese monetary tightening continue to cast doubt over the global economic recovery.

"Geopolitical tension, ongoing financial risks from Greece, Portugal and Spain and further liquidation of speculative long positions will continue to weigh on the oil price," ANZ Banking Group said in a report.

Crude demand remains sluggish despite support from cold weather in the U.S. northeast.

Analysts expect U.S. crude stocks to grow 2 million barrels, according to a survey released Monday by Platts, the energy information arm of McGraw-Hill Cos.

Some analysts said conditions were building up for oil prices to break out of their recent range between $70 and $85 a barrel and reach an average of $92 a barrel in the second half of 2010.

"Downside risks to crude oil prices have diminished with various economic data points suggesting that the worst is over for oil demand," said a report by Francisco Blanch, commodity strategist at Bank of America Merrill Lynch.

In other Nymex trading in March contracts, heating oil rose 1.45 cents to $1.90 a gallon, and gasoline added 0.95 cent at $1.9035 a gallon. Natural gas gained 2.5 cents to $5.426 per 1,000 cubic feet.

In London, Brent crude was up 47 cents at $70.58 on the ICE futures exchange.