Oil back above $72 as dollar slumps

Oil prices rose back above $72 a barrel today as investors picked up commodities after the U.S. dollar slumped on comments by Russian President Medvedev, who said the world needed new reserve currencies.

Benchmark crude for July delivery was up $1.74 to $72.36 a barrel by mid-afternoon in Europe in electronic trading on the New York Mercantile Exchange. On Monday, it fell $1.42 to settle at $70.62

Medvedev’s comments, which included the suggestion that Russia and China invest some of their reserves in each other’s debt instead of buying only U.S. Treasuries, helped the euro rise against the dollar to $1.3895 on Tuesday from 1.3788 on Monday. The British pound rose to $1.6453 from $1.6342.

The dollar and oil typically trade inversely as investors buy commodities to protect themselves from the inflation risks posed by a weak U.S. currency.

“Unfortunately, the energy markets have been hijacked, again, by currency transactions,” U.S. energy consultancy Cameron Hanover said in a research note. “The future course of the U.S. dollar currently trumps long-standing fundamental factors like inventories, refinery output, OPEC and refined products demand.”

Oil has doubled in value since March on expectations the worst of the global economic slowdown is over.

But bad economic news could puncture investor optimism. An index of New York manufacturing released by the Federal Reserve Bank of New York on Monday indicated that demand weakened in June.

The Standard & Poor’s 500 index, which had risen 40 percent since March 9, dropped 2.4 percent Monday.

“I wouldn’t be surprised if oil goes back to the low $60” level, said Clarence Chu, a trader at market maker Hudson Capital Energy in Singapore. “The rally hasn’t been driven by fundamentals, which are still pretty weak.”

Wednesday’s release of petroleum inventory data from the Energy Department’s Energy Information Administration could provide some insight about crude demand. Analysts expect a drawdown of 1.7 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Stocks have fallen for several weeks, but are still near 19-year highs.

In other Nymex trading, gasoline for July delivery rose 3.81 cents to $2.0911 a gallon and heating oil gained 4.73 cents to $1.8629. Natural gas for July delivery jumped 14.1 cents to $4.323 per 1,000 cubic feet.

In London, Brent prices rose $1.64 to settle at $71.88 a barrel on the ICE Futures exchange.