Oil rose back above $74 today after a 2 per cent fall a day ago, supported by a softer dollar, but forecasts for a build in US crude stocks and slow economic recovery limited gains.
The dollar eased after senior Federal Reserve officials dashed speculation of a quick rise in US rates, with the Fed chief cautioning that the economy still faced resistance and unemployment could stay high for some time, playing down the impact of last week's upbeat jobs report.
US crude for January delivery gained 31 cents to $74.24 a barrel by 0610 GMT, after settling $1.54 lower yesterday. Brent crude rose 49 cents to $76.92.
NYMEX crude had touched its lowest level in about a week around $73.70 a barrel yesterday, undermined by gains for the US currency, which saw its strongest rise in almost a year on Friday after data showing the United States lost far fewer jobs than expected last month.
A weak dollar makes dollar-denominated commodities, such as oil, less expensive for holders of other currencies and tends to support prices.
The dollar index was down 0.2 per cent today, while the euro and commodities-linked Australian dollar edged up.
"The US dollar has eased in the past few hours and that is also a factor that has helped oil prices slightly," said David Moore, Commonwealth Bank's commodities strategist, who added that prices were still below the $75-80 range seen in recent months.
"The economy is still mixed," he said. "While China is strong, the US is unlikely to see a smooth recovery and there will be periods of reversals. But the anticipation of a recovery will be supportive in the coming year."
The softer dollar helped gold to recover from a two-week low hit the previous day, but the less optimistic economic outlook dampened Asian equities.
Adding to the bearish undertone are predictions for a 500,000-barrel rise in crude stocks on higher imports - the third straight week of increase - and a 1.4 million-barrel increase in gasoline supplies in the United States.
But distillates inventories are expected to fall by 300,000 barrels, an initial Reuters poll showed.
Reuters