Oil back over $124 after fall

RALLY RESUMES: Crude continues trend upwards after slight dip sees brief price decline. (Getty Images)

Oil edged up on Thursday, recovering after rising U.S. distillates stocks and Iran's reassurances that it would not cut crude exports pushed prices down a day earlier.

US light crude for June delivery was up 29 cents a barrel at $124.51 by 0635 GMT, after having settled down $1.58 at $124.22, and having brought to an end a series of seven consecutive days of intraday record highs.

London Brent crude, whose frontmonth June contract expires by the end of Thursday, was up 46 cents at $122.32.

"The market is on a downtrend, given the US stocks announcement. And it comes after the EIA's forecast of weaker oil demand for 2008," said Gerard Burg, a Melbourne-based analyst at National Australian Bank.

"But there is always potential for a rebound. And we really see little downside over the next few months, with prices remaining around where they are now," he added.

Weekly US inventory data showed a larger-than-expected 1.4 million barrels rise in distillates stocks that include heating oil and diesel fuel, easing concerns about a tightening distillates market that has sent heating oil futures to record highs this week.

"Should we get some further US distillate inventory improvement in the weeks ahead, there MIGHT be some softening of prices, although any reduction as it relates to crude oil prices could be short-lived, since the market will likely find a new poster child for strong pricing," said FirstEnergy Capital in a weekly note.

US crude stocks rose by only 200,000 barrels as imports dropped and refiners boosted utilization rates, while gasoline inventories, which are expected to take center stage soon with the start of the US driving season by the end of the May, fell by 1.7 million barrels.

Also helping to cap prices, a senior Iranian official said on Wednesday Iran had no plans to cut exports to world markets.

On Tuesday, a report had quoted Iranian President Mahmoud Ahmadinejad as saying a proposal to reduce the country's output was being reviewed by experts.

Adding to the softer tone on Thursday, the dollar rose against the yen to near a 2-month high on recent stability in US share prices, higher US bond yields and growing perception that the worst of the credit crisis may be over.

Oil prices and dollar moves have grown closely intertwined over the past few months, with investors piling into oil and other commodities as a hedge against the falling dollar. (Reuters)

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