Oil prices briefly hit a nearly three-year high but quickly fell back below $113 a barrel Thursday as a weakening U.S. dollar made commodities cheaper for investors holding other currencies. Expectations of slower U.S. economic growth in the first three months of the year also drove down prices.
By early afternoon in Europe, benchmark crude for June delivery was down 15 cents at $112.61 a barrel in electronic trading on the New York Mercantile Exchange. Crude reached $113.70 earlier in the session, the highest since September 2008.
The contract rose 55 cents to settle at $112.76 on Wednesday.
In London, Brent crude for June delivery was down 24 cents to $124.89 a barrel on the ICE Futures exchange.
Federal Reserve Chairman Ben Bernanke said Wednesday the central bank would complete a second round of Treasury purchases, known as quantitative easing, through June and keep lending rates low.
The euro rose to $1.4836 on Thursday from $1.4773 while the dollar fell to 81.65 yen from 82.26.
Bernanke's comments "suggested a continued loose monetary policy for an extended period that is apt to maintain pressure on the dollar in the process of boosting equities and assets such as oil," Ritterbusch and Associates said in a report.
The Fed has kept rates low and pumped cash into the economy in an effort to boost lending and growth coming out of the 2009 recession. But that policy has also helped inflate the prices of dollar-based commodities such as oil, which is up about 50 percent since last summer.
Analysts expect the U.S. economy to have grown at an annual rate of 1.9 percent in the January-March quarter, a significant decrease from the 3.1 percent growth rate in October-December of 2010.
"Since September, worse than expected economic data was taken positively by commodity markets as it implied more cash flows from the U.S. Fed," said Olivier Jakob of Petromatrix in Switzerland. "Now that the Fed has its hands a bit more tied due to inflation, we could be gradually coming back to a more normal world where worse than expected economic data is bad, and better than expected data is good."
Prices were supported by reports that Libyan rebels aren't expected to renew crude production for at least four more weeks and interpretations that a drop in U.S. gasoline inventories could be a sign of improving demand.
On the other hand, Wednesday's weekly report on the nation's petroleum supplies from the Energy Department's Energy Information Administration showed demand for gasoline over the past four weeks was 1.6 percent lower than a year earlier and that crude oil inventories rose last week by 6.2 million barrels, far above the 1.6 million-barrel increase predicted by analysts.
In other Nymex trading in May contracts, heating oil fell 0.04 cents to $3.233 a gallon and gasoline added 1.32 cents to $3.4326 a gallon. June natural gas futures were up 2 cents at $4.428 per 1,000 cubic feet.
-- Associated Press