Oil rose towards $132 a barrel on Wednesday ahead of the weekly US oil inventories data forecast, erasing some of the two previous sessions' $7 losses trigggered by a rebound in the US dollar.
US light crude for July delivery rose 63 cents a barrel to $131.94 by 3:00am GMT, having settled $3.04 lower on Tuesday, after the US Federal Reserve signalled it was taking aim at inflation, helping push the dollar higher, and oil lower.
London Brent crude rose 83 cents to $131.85.
"Over the last two days, we saw some profit taking after sharp gains. We may see some more profit taking today but I believe the market will rise further," said Ken Hasegawa, manager of commodity derivatives sales at broker Newedge in Tokyo.
"I don't see the dollar as strong. The euro is still better. And we need to see further demand decline in Asia before it can affect prices," he added.
The dollar steadied on Wednesday, holding sharp gains made this week against the euro and the yen, but traders said it was likely to continue its broad rally if Fed officials scheduled to speak later in the day voiced concern for inflation.
Oil and other commodities have surged to record heights in recent months as investors piled money into the markets as a hedge against the weak dollar and inflation.
The US Energy Information Administration will release its weekly oil stocks data at 14:35pm GMT on Wednesday, expected to show falling crude stocks as refineries ramped up output, but also rising products stocks as demand edges down.
Analysts polled by Reuters forecast data would show a 1.1 million barrel draw for crude inventories, extending drawdowns to the fourth week in a row, and a 1.2 million barrel rise in gasoline stocks, the second weekly rise in a row, as production rose and with demand hurt by high prices at the pump.
The market has been looking for signs of demand destruction as prices have risen over $130 a barrel, hitting an all-time high of $139.12 last Friday, prompting fuel protests around the world, and subsidy cuts in several Asian countries.
The International Energy Agency report revised 2008 global energy demand down more than 200,000 barrels per day as Asian economies move to roll back fuel subsidies.
The US Energy Information Administration, in a separate report on Tuesday, also cut its forecast for world demand growth by about 200,000 barrels per day, with consumption in the US shrinking dramatically.
OPEC kingpin Saudi Arabia will host a meeting of oil producers and consumers on June 22 to discuss high oil prices, the group's Secretary General said on Tuesday.
The Organization of the Petroleum Exporting Countries has repeatedly declined calls for more output from consumer nations, saying high prices have nothing to do with a shortage of supply.
"We are panicking too much," OPEC Secretary General Abdullah Al-Badri told the Reuters Global Energy Summit.
"I want to say there is no shortage now and in the future." (Reuters)For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.