Oil bounces back on ailing greenback

Oil bounced back from an earlier dip below $100 a barrel as the dollar weakened today, ending a four day-retreat that has knocked a tenth off prices since last week.

US light crude for May delivery stood 60 cents higher at $101.46 a barrel by 1215 GMT, up from an earlier low of $99.66, but sharply down from a record high $111.80 a barrel touched on 17 March.

London Brent crude was up 95 cents to 100.81 a barrel, recovering from an earlier $98.70 low.

"We remain on a trading pattern closely tied to the dollar. The dollar has starting falling again, and other commodities were well supported yesterday, so people are now doing some short-covering," Olivier Jakob at Petromatrix told Reuters.

The dollar fell today, snapping four days of gains, with persistent nerves on US economic health dominating sentiment.

A recovery in the dollar from recent lows against the euro ahead of the Easter break had helped pushed oil prices down late last week and yesterday, as it pressured its nominal price. But underlying concerns about US demand remained.

"The question is how bad the US economy is going to be. So the tendency for the time being is to back off after people took profit from last week's highs," Tony Nunan, risk management executive at Tokyo-based Mitsubishi, told Reuters.

Oil has dropped more than $10 from last week's record as investors fled commodities on a view that gains had been overdone.

A slowdown in the US economy, combined with a seasonal fall in demand in the second quarter, may drive oil prices below the $100 mark for the coming weeks, analysts said.

"There is a realisation in the market that the fundamentals really don't justify prices to be so far above $100," said Gerard Burg, a resource analyst at the National Australia Bank.

"One of the key factors is the recent build-up in US stockpiles and the stocks are looking pretty healthy at this stage," he added.

Analysts expect a third rise in a row in weekly US crude oil stocks, seen up 700,000 barrels in the week to 21 March, according to a preliminary Reuters poll ahead of yesterday's government data.

The nine analysts polled also expected a more bullish 1.6 million barrels fall in distillates stocks and a 900,000-barrel fall in gasoline inventories.

In Iraq security forces launched a major operation in the southern oil city Basra to bring it under government control.

Iraqi oil sources said Basra's oilfields, which exported 1.54 million barrels per day in February, were operating normally today.