Oil rises above $126 a barrel

(AP) -- Oil rose above $126 a barrel on Friday, extending gains in the previous session after recent declines over the past two weeks. A weaker dollar is making oil futures more attractive to investors.


Reports that U.S. crude oil supplies rose by 3 million barrels last week has prompted a fall in oil prices.

But the price gains were limited by the concerns that flagging fuel demand did not justify the recent high prices.

Light, sweet crude for September delivery rose 68 cents to $126.17 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.05 to settle at $125.49 a barrel on Thursday.

Oil prices fell sharply on Wednesday, tumbling $3.98 to settle at $124.44 a barrel, its lowest finish since June 4. Crude has fallen in six of the past eight sessions, and now sits nearly 15 percent below its peak above $147 a barrel earlier this month.

In London, September Brent crude rose 86 cents to $127.30 a barrel on the ICE Futures exchange.

"The reality is that the fall of $20 per barrel has been fast and furious and really the fundamentals of the market that drove pricing to above $145 really have not changed," said Victor Shum, an energy analyst with consulting firm Purvin & Gertz in Singapore. "Some market participants simply view this as a 'buy' opportunity."

Investors' short covering -- buying back rising securities which they had sold on speculation prices would fall -- was another factor behind the rebound, Shum said.

As a result, the inventory of unsold homes in the United States inched up to 4.49 million units, representing an 11.1 month supply at the June sales pace, the second-highest level in the past 24 years.

At midday in Europe, the euro was up to $1.5737 from $1.5679 late Thursday in New York, while the dollar fell to 107.13 Japanese yen from 107.29 yen in the previous session.

Investors turn to oil and other commodities as a safeguard against inflation and a weaker U.S. dollar. When the dollar strengthens, it usually has a bearish effect on oil prices.

The rebound in crude prices, however, remained limited by concerns about demand destruction.

"U.S. oil consumption is down on the levels of a year ago and I think there is evidence of some adjustments in response to the high level of oil prices," said David Moore, a commodity strategist with Commonwealth Bank of Australia in Sydney.

Americans used 2.4 percent less fuel over the past four weeks than they did a year ago, the latest figures by the U.S. Energy Department's Energy Information Administration show. While that may not sound like much, industry experts say it represents a significant shift by the world's largest energy consumer, especially during America's summer driving season.


Data also showed a bigger-than-expected increase in U.S. gasoline supplies, adding to concerns that drivers are cutting back.

Investors remained on guard over a threat Wednesday by Nigeria's main militant group that it will destroy major pipelines in the oil exporting country within 30 days. The threat -- which only weeks ago might have caused oil prices to spike -- did little to push crude higher.