LONDON: Brent crude rose above $110 on Thursday, extending gains on the back of a weaker dollar after the US Federal Reserve said it would keep interest rates low for longer than planned, to help speed an economic recovery.
Markets cheered the Fed's rate outlook and European shares, base metals, gold and the euro all rose as the comments helped counter concerns among investors about Greece's debt crisis worsening and hurting the global economy.
Fed Chairman Ben Bernanke's comments that the US central bank could consider further monetary easing weighed on the dollar, lending further support to oil.
A weaker greenback renders dollar-denominated assets such as crude cheaper for holders of other currencies. The dollar index was down 0.48 percent, after slipping to five-week lows earlier in the session.
Front-month Brent crude futures were 94 cents higher at $110.75 a barrel by 1021 GMT, reversing two days of losses, and having surged to intra-day highs of $111 per barrel.
US crude added 39 cents to $99.79, rising for a second day.
"An easy money policy should ultimately result in helping the US economy to continue to recover and start a more accelerated growth pattern," Dominick Chirichella of New York's Energy Management Institute wrote in a note. "If so, it should result in a return to oil consumption growth and thus the bullish or positive result of the oil market over the last 24 hours as well as the broader commodity complex."
But other analysts warned that the last round of quantitative easing was matched by a surge in oil prices, which could impinge on demand as the euro zone continues to struggle.
According to Reuters data, Brent prices surged by around 30 percent between Nov. 3 2010 and June 30 2011, the second round of quantitative easing by the Fed, or QE2.
"On the one side, you can argue that QE can bring additional liquidity and support to the market, but (oil) at those price levels would result in demand destruction," Petromatrix's Olivier Jakob said.
Greece remains in focus as negotiations on a debt swap deal between private creditors and officials carry on ahead of a March deadline when Athens faces major bond redemptions.
"In the very short term this is the main event evolving in Europe that could have an impact on global risk asset markets," Chirichella said. "For now there is still a bit more optimism that a negotiated solution will be reached rather than a chaotic default process that could result in Greece getting squeezed out of the EU and increasing the risk of contagion to other southern EU member countries."
SUPPLY IN THE BALANCE
Market sentiment was overshadowed by fears of a supply disruption amid growing tensions between the West and Iran over the Islamic republic's nuclear programme. The United States has toughened sanctions, while Europe has put in place a move to ban oil imports from Iran.
"The passage of EU sanctions against Iranian crude oil leaves the displaced flows to find a market in Asia before the sanctions take effect in July," analysts at Barclays Capital said in a report. "The mathematics of the potential trades seems to be very delicately balanced, leaving a possibility that not all the displaced crude will find a market easily."
DEMAND OUTLOOK
The Fed news also overshadowed data from the Energy Information Administration showing crude inventories rose more than expected as imports rebounded and refinery utilization fell.
Stocks increased by 3.6 million barrels in the week to Jan. 20, well over the 800,000 barrel build forecast in a Reuters poll of analysts.
US stockpiles of distillates barrels dropped by 2.5 million barrels, after analysts had forecast no change in inventories for the week. Gasoline inventories dipped by 390,000 barrels, against expectations for a 1.9 million barrel rise.
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