Oil prices edge up ahead of data

Oil prices edged up Wednesday but were still below the intraday peak of almost $110 a barrel set a day earlier, supported by further weakening in the U.S. dollar.

Traders were awaiting the release of data later Wednesday on U.S. petroleum inventories. Analysts surveyed by Dow Jones Newswires were expecting an increase.

Light, sweet crude for April delivery on the New York Mercantile Exchange rose 19 cents to $108.94 a barrel in electronic trading by afternoon in Europe.

On Tuesday, crude futures settled at a record finish of $108.75 a barrel, up 85 cents on the day after rising to a new trading high of $109.72 a barrel during the day.

The euro and other major currencies rose Wednesday against the dollar despite the U.S. Federal Reserve's plan to pump $200 billion into financial markets to help ease the strain from the credit crisis.

The 15-nation euro rose to $1.55 for the first time, up from $1.5319 in New York late Tuesday.

The relief plan is seen as likely to remove pressure on the Fed to cut interest rates before its next meeting. and in the short term "could have had a cooling effect on crude prices," noted Vienna's JBC Energy in its daily report. Still others warned that it could have the opposite result down the road.

"The end result of what the Fed did yesterday would be still to eventually increase liquidity, and that would still have the effect of weakening the U.S. dollar," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

"That's going to support crude oil pricing," he said.

The dollar's weakness has fueled much of oil's recent run-up, as investment funds seek a hedge in hard assets. Speculation that rising prices for oil and other commodities will offset the falling dollar has been the main drivers of oil's rally from $87 a barrel in January.

Shum noted that the surge in investors' demand for commodities as a hedge against inflation has created a self-fulfilling cycle that causes prices to keep rising.

"As oil prices go higher and the inflation pressure continues to build, that further attracts investors to buy into oil and other commodities to get better returns," he said.

Oil's growing strength has also come amid warnings that there were no signs of relief from high oil prices on the immediate horizon.

Two prominent forecasters warned Tuesday that brisk demand in China and other emerging markets is likely to offset any downturn in demand in the U.S.

The Paris-based International Energy Agency on Tuesday said high crude prices continue to chip away at oil consumption in the U.S. and other industrialized nations, but warned of continuing strong demand in China and other emerging markets.

The energy watchdog agency for the world's most industrialized nations slightly cut its projection for world oil demand, which it now sees at 87.5 million barrels a day for this year, up 2 percent from 2007.

Separately, the U.S. Energy Information Administration said Tuesday it expects a slowing economy and record high oil prices to hold U.S. oil demand growth to just 40,000 barrels a day in 2008, bringing daily consumption to 20.74 million barrels.

The U.S. petroleum stockpiles report is expected to show that U.S. crude oil stockpiles grew 1.6 million barrels, gasoline stockpiles grew 300,000 barrels, and stocks of distillates, which include diesel fuel and heating oil, fell 2 million barrels.

In other Nymex trading, heating oil and gasoline futures were essentially steady at $2.9913 and $2.7024 a gallon, respectively. Natural gas futures lost 4.1 cents to $9.959 per 1,000 cubic feet.

In London, Brent crude futures were unchanged at $105.25 a barrel on the ICE Futures exchange.