NEW YORK (Reuters) - Brent oil jumped 2 percent to near $124 a barrel on Wednesday as U.S. crude oil inventories fell for the first time in seven weeks and the dollar weakened sharply, fueling investor appetite for riskier assets.
Oil's rise was part of a broader commodities buying binge sparked by a weaker dollar, with gold setting a record above $1,500 an ounce. Persistent worries about U.S. fiscal health punished the greenback and drove investors to seek assets with potentially richer returns.
Oil also benefited from a rise in U.S. equities as the Dow Jones industrial average . ended at the highest level in almost three years after strong corporate earnings reports. .N
ICE Brent crude for June delivery settled up $2.52 to $123.85 a barrel, after reaching an intraday high of $124.23.
Brent hit a 32-month high above $127 a barrel on April 11, but concerns about high prices stifling world fuel demand had since cut them back.
U.S. June crude gained $3.17 a barrel to settle at $111.45 a barrel, the highest since April 18, when U.S. crude posted its steepest close of 2011 at $112.79.
Volumes were slim, with U.S. crude trading about 478,000 lots, 26 percent below the 30-day average with less than 10 minutes of trading left in the day.
Brent crude volume reached about 310,000 lots, down 31 percent from the 30-day average,
U.S. crude inventories fell 2.32 million barrels last week, bucking average analyst forecasts in a Reuters poll for a 1.1 million barrel increase. It was the first drawdown since the week to February 25.
A big drop in U.S. crude imports and a rise in refinery utilization as plants emerged from spring maintenance also helped to prompt a ninth-consecutive drawdown in U.S. gasoline stocks and a second weekly decline in U.S. distillate supplies, EIA data showed.
"The inventory trend has been very bullish for the last 10 weeks. And this is partly supporting the strength in crude prices outside geopolitics," said Mark Kellstrom, senior analyst at Strategic Energy Research and Capital in Summit, New Jersey.
The latest drop in gasoline stocks came as demand was expected to rise further in this week's Easter holiday driving, ahead of U.S. summer driving season beginning on Memorial Day at the end of May.
Rising pump prices haven't yet hindered Americans' penchant to hit the roadways, the latest date from the U.S. Transportation Department showed.
In February, U.S. highway travel rose 0.9 percent from a year earlier, with vehicle miles up for the 12th month in a row.
WEAKER DOLLAR IMPACTS COMMODITIES
The dollar index .DXY, which measures the greenback against a basket of currencies, was down 0.87 percent, dipping to near its lowest point since 2008. A dip in the U.S. currency can support dollar-denominated commodities by making them cheaper for holders of other currencies.
Reuters data showed the correlation between a weakening dollar and rising oil prices has reached its most accentuated level of 2011.
"Oil is up there with gold as an inflation hedge for investors," said Mike Zarembski, senior commodities analyst at optionsXpresss in Chicago.
At the same time, "everyone is still afraid to be short with the (political unrest) situation in the Middle East," Zarembski said.
The International Energy Agency's executive director, Nobuo Tanaka, issued the latest warning that high oil prices could reduce demand in top consumers the United States and China.
OPEC should boost output in June or July to douse further price rises, Tanaka said, adding that if crude prices stayed at $100 a barrel or more for the rest of 2011, the market could see demand destruction similar to that of 2008.
But OPEC itself sees oil prices between $80 and $90 as "adequate" and has no plans for an emergency meeting because the market is well supplied, Ecuador's Oil Minister, Wilson Pastor, told Reuters in an interview.