Oil Rises on Weak Dollar, Despite IEA Demand Downgrade

Oil prices rose Wednesday on the weaker dollar and mostly positive global data as traders ignored news that the International Energy Agency had cut its estimate for demand growth in 2012, traders said.

New York's main contract, West Texas Intermediate crude for delivery in February, increased 60 cents to $101.31 a barrel.

Brent North Sea crude for March gained 29 cents to $111.82.

"A very quiet start to the day, with oil up on a slightly weaker dollar," VTB Capital commodities analyst Andrey Kryuchenkov told Agence France Presse.

"Crude mostly ignored the IEA's downbeat assessment of demand growth in 2012."

The dollar lost ground against the euro on Wednesday as speculation that China could ease monetary policy improved market sentiment and encouraged investors to buy the risk-sensitive single currency.

The shared Eurozone unit rallied to $1.2811 in London late morning trade from $1.2737 in New York late Tuesday.

A weaker U.S. unit makes dollar-priced crude cheaper for buyers using stronger currencies, like the euro, and this tends to boost oil demand and push up prices.

The International Energy Agency on Wednesday cut its 2012 global oil demand growth forecast, with the market dragged down by a weakening world economy and stubbornly high prices, while the nuclear crisis with Iran deepens.

The Paris-based IEA cut its outlook for 2012 demand growth to 1.1 million barrels per day (mbpd) from 1.3 mbpd, citing the impact of a fall in demand in the fourth quarter of 2011 of 300,000 bpd.

According to the IEA, demand will be divided between declining appetite for oil in richer OECD countries, particularly in Europe, and continued growing demand in developing countries, especially Asia.

The current standoff with Iran, faced with the prospect of an European Union oil embargo on fears Tehran is aiming to acquire nuclear weapons, has also "further dampened prospects" for demand, along with a mild winter in the northern hemisphere, the IEA said.

The IEA added that oil prices, however, remained stable as "a rising likelihood of sharp economic slowdown" was offset by supply concerns linked at least in part to the Iranian crisis.

In December, non-OPEC supply fell by 140,000 bpd to 53.2 mbpd due to Middle East unrest and other unplanned outages, the IEA said.

A rebound to 340,000 bpd growth is expected for the first quarter of 2012 and 1.0 mbpd for 2012 overall.

The IEA warned that in 2012 that geopolitical risks have shifted to Nigeria, Iraq and "most pressingly, Iran."

Because of the Iranian nuclear crisis, at least a portion of Tehran's 2.5 mbpd of oil exports could be denied to OECD refiners in second half 2012, the IEA said.

Prices rose Tuesday on positive US and Chinese economic data and after Saudi Arabia said it would like to keep prices high at around $100 a barrel, analysts said.

Official data Tuesday showed China's economy growing 8.9 percent in the last quarter of 2011, higher than analyst expectations of 8.6 percent although it was lower than in the previous three months.

In the U.S., sentiment was also boosted by the Federal Reserve's Empire State index of manufacturing activity in New York, which showed a pick-up in January that exceeded expectations.

The United States is the world's largest oil consumer, while China is the global leader in energy consumption.