Oil edges up 3% as U.S. dollar weakens against euro

(Reuters) – Oil prices jumped as much 3 percent on Tuesday as a weaker dollar propped up commodities priced in the currency, prompting short-covering in a market that has sold off with little pause over the past seven months.

The market rallied despite expectations of another large build in U.S. crude stocks last week, and surprised some traders. But others said they did not think oil was on the cusp of an extended recovery due to nagging worries about the global oversupply in crude.

An updated Reuters poll showed U.S. crude inventories rose 4.1 million barrels, on average, in the week to Jan. 23. That added to the previous week’s build of over 10 million barrels, the biggest in 14 years, to the highest level on record for this time of year. [EIA/S]

Genscape, which tracks oil inventories, reported a near 2.4 million-barrel build last week in Cushing, the Oklahoma delivery point for U.S. crude futures, a market source said.

The American Petroleum Institute (API), an industry group, will release its weekly inventory report at 2130 GMT. Government data will be issued on Wednesday morning.

“Given the expectations in supply, it’s kind of surprising to see the market pop this much today,” said Andrew Lipow, president at Lipow Oil Associates in Texas.

“There’s probably some short-covering after the extended selloff we’ve had for weeks now, but I don’t think fundamentally anything’s changed.”

Benchmark Brent crude LCOc1 settled up $1.44, or 3 percent, at $49.60 a barrel after rallying to just a penny short of $50. The last time Brent was at $50 was on Jan. 22.

U.S. crude futures CLc1 finished up $1.08, or 2.4 percent, at $46.23 a barrel, after a session peak at $46.55.

The dollar retreated from an 11-year high in the previous session, falling about 1 percent to the euro EUR= after weaker-than-expected orders for U.S. durable goods in December.

Trading volumes in U.S. oil futures were about half their usual levels, with many traders in New York working away from their desks after a blizzard swept across the northeastern United States. Thomson Reuters data showed less than 300,000 lots traded for the front-month contract in U.S. crude.