Oil rises above $98 amid weaker dollar

Oil prices rose above $98 a barrel Wednesday as the dollar weakened and a crude supply report showed mixed signs about U.S. demand.

By early afternoon in Europe, benchmark crude for June delivery was up $1.27 to $98.18 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 47 cents to settle at $96.91 on Tuesday.

In London, Brent crude for June delivery was up $1.14 to $111.13 a barrel on the ICE Futures exchange.

The American Petroleum Institute said late Tuesday that crude inventories rose 2.7 million barrels last week, more than the increase of 500,000 barrels predicted by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos.

However, inventories of gasoline fell by 676,000 barrels last week and distillates dropped 2.8 million barrels, the API said.

Some analysts expect higher gasoline prices will undermine U.S. demand this summer.

"The relatively weak consumer recovery makes for a rather muted outlook as we head into the U.S. driving season," Bank of America Merrill Lynch said in a report. "The most pressing question in the petroleum product market is whether gasoline demand in the United States will hold up this summer and the answer is probably not."

The Energy Department's Energy Information Administration reports its weekly supply data later Wednesday.

A weaker U.S. dollar, which makes oil less expensive for investors with other currencies, helped push crude higher.

The euro rose to $1.4250 on Wednesday from $1.4236 late Tuesday while the dollar slid to 81.10 yen from 81.43 yen.

"The lower prices are obviously being seen by some market players as buying opportunities," said analysts at Commerzbank in Frankfurt. "Some supporting factors such as a weaker U.S. dollar or friendly equity markets are needed at present for the price of oil to gain further ground. If this not be the case ... the price will generally tend toward weakness."

Oil has dropped from near $115 on May 2 amid investor concern global demand is waning. Traders are worried that recent Chinese efforts to contain inflation by raising lending rates will slow economic growth and its demand for commodities.

"Expectations that buoyant Chinese demand will drive commodity prices ever higher have been looking increasingly shaky," Capital Economics said in a report. "China's imports of many key commodities have actually been falling in recent months."

In other Nymex trading in June contracts, heating oil rose 3.52 cents to $2.8803 a gallon and gasoline gained 2.95 cents to $2.9488 a gallon. Natural gas futures increased 2.4 cents to $4.206 per 1,000 cubic feet.

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