Oil ends down, eases off record above $106 a barrel

By Matthew Robinson

NEW YORK (Reuters) - Oil ended slightly lower on Friday, falling from record highs hit earlier when buying by speculators hedging against the weaker dollar and inflation sent prices above $106 a barrel.

U.S. oil settled down 32 cents at $105.15 a barrel, trimming gains after hitting an all-time high of $106.54 earlier in the trading session. London Brent crude settled 23 cents lower at $102.38 a barrel.

"We rose earlier on the dollar play and expectations that the Fed may have to lower rates," said Rob Kurzatkowski, a futures analyst with optionsXpress.

"This has lately been an inflation and currency play."

A government report showing a second straight month of contractions in U.S. payrolls spurred talk the Federal Reserve might cut interest rates again, weakening the dollar early in the day. The greenback later rebounded, helping to ease oil off earlier highs.

The steady decline in the U.S. dollar has helped push commodity prices higher, while a sharp drop in U.S. crude stocks and OPEC's decision on Wednesday not to increase output also boosted oil prices.

While U.S. crude inventories had been building in recent weeks and U.S. gasoline stocks were at 14-year highs, a U.S. government report showed crude stocks fell by 3.1 million barrels last week, against forecasts for an increase.

The Organization of Petroleum Exporting Countries, which pumps more than a third of the world's oil, has long argued the current high prices do not reflect market fundamentals and are being driven by speculation.