Oil prices hovered above $108 a barrel Wednesday, boosted by a weaker dollar and the unrest in Libya, even as a U.S. crude supply report showed mixed signals about demand.
By early afternoon in Europe, benchmark crude for May delivery was down 17 cents at $108.17 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 13 cents to settle at $108.34 on Tuesday.
In London, Brent crude for May delivery was up 29 cents at $122.51 a barrel on the ICE Futures exchange.
The euro's gains on the dollar came on expectations that the European Central Bank will raise interest rates this week. A weaker dollar makes oil and other commodities priced in dollars cheaper for investors holding other currencies.
On Tuesday, the euro was up to $1.4304 from $1.4245 late Monday in New York.
Fighting in Libya between rebels and forces loyal to Moammar Gadhafi continued, with oil exports from the African country — an important supplier to Europe — unlikely to return to normal levels soon.
The Libyan conflict "is the single greatest issue driving crude prices at present," said a report from JBC Energy in Vienna.
Data on U.S. oil stockpiles added uncertainty to the market.
The American Petroleum Institute said late Tuesday that crude inventories fell 2.8 million barrels last week, suggesting stronger demand. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had forecast an increase of 1.3 million barrels.
However, inventories of gasoline rose unexpectedly by 568,000 barrels and crude supplies at the key U.S. storage facility in Cushing, Oklahoma rose 120,000 barrels, the API said.
"The API report was bullish in the big picture sense, with a large unexpected draw in crude oil inventories, but we are not convinced," energy consultant The Schork Group said in a report.
The Energy Department's Energy Information Administration reports its weekly supply data — the market benchmark — later Wednesday.
The price gap between the Nymex and Brent contracts has widened again as Brent's rise has outpaced the U.S. benchmark.
"It is hardly surprising that U.S. oil is not able to keep up with the latest rally and is even tending a little softer," said analysts at Commerzbank. "This is because the tensions in North Africa are largely behind the rise in prices while the supply situation in the U.S. essentially remains relaxed."
Traders are also mulling the impact rising global interest rates will have on economic growth and demand for crude. On Tuesday, China hiked interest rates for the fourth time since October in a bid to slow inflation.
"So far China's rate hikes have not collared inflation," The Schork Report said. But oil prices are likely to fall once the rate hike effects are felt, it said.
In other Nymex trading, heating oil rose 0.79 cent to $3.1929 a gallon and gasoline dropped 1.62 cents to $3.1851 a gallon. Natural gas futures were down 2.3 cents at $4.208 per 1,000 cubic feet.
