09/13/2011 08:26 EDT | Updated 11/13/2011 05:12 EST

Oil hovers near US$90 in Europe amid weaker U.S. dollar, lower demand forecasts

Oil prices rose to near US$90 a barrel Tuesday as a weaker U.S. dollar and expectations of falling U.S. stockpiles of crude and gasoline outweighed fresh forecasts of fragile global demand.

By early afternoon in Europe, benchmark oil for October delivery was up $1.47 at $89.66 in electronic trading on the New York Mercantile Exchange. Crude had risen 95 cents to settle at $88.19 on Monday.

In London, Brent crude for October delivery was up nine cents at US$112.34 on the ICE Futures exchange.

A weaker American dollar contributed to higher oil prices by making crude cheaper for investors holding other currencies.

After falling earlier in the session, the euro recovered to US$1.3684 from US$1.3666 late Monday in New York, while the dollar dipped to 76.94 Japanese yen from 77.25 yen.

"Oil markets are still showing relative strength. Not only has crude virtually escaped the downward pull of financial markets in past weeks, but it has actually profited from the short-term recovery tendencies," said analysts at Commerzbank in Frankfurt.

"The latest strength is all the more remarkable given that international oil agencies have now also confirmed that the fundamental climate is clouding."

Investors are also awaiting fresh information on U.S. stockpiles of crude and refined products.

Data for the week ended Sept. 9 is expected to show draws of 2.9 million barrels in crude oil stocks and of 400,000 barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the U.S. Energy Department's Energy Information Administration — the market benchmark — will be out Wednesday.

Inventories likely fell due to production and transport disruptions in the Gulf of Mexico caused by tropical storm Lee, which hit the region earlier this month.

A recent pledge by the U.S. Federal Reserve to keep lending rates low for the next two years has also helped bolster commodity prices.

"Crude still appear to be supported by oil's long-term appeal as an asset class amid additional stimulus efforts that include a sustainable low interest rate environment beyond next year," Ritterbusch and Associates said in a report.

A slowing global economy limited crude's gains.

The International Energy Agency On Tuesday adjusted downward its prediction of how much more global oil demand there will be this year and next on falling expectations of economic growth.

The Paris-based IEA cut its 2011 demand forecast by 200,000 barrels a day, to 89.3 million barrels a day, while in 2012 daily demand is expected to total 90.7 million barrels, 400,000 barrels less than its expectations a month ago.

Crude production in Libya is expected to speed up over the coming months, with the IEA envisioning exports at 250,000 barrels a day by the end of the year and rising to as much as 850,000 barrels a day by the end of 2012.

Before the fall of Moammar Gadhafi's regime, Libya was exporting 1.2 million barrels a day to IEA members.

"The prospects for partial restoration of Libyan hydrocarbon supplies in the short term have improved following the fall of Tripoli to rebel forces," the IEA said in its monthly oil market report. "Damage to production facilities, pipelines, refineries and ports, although believed comparatively light, will need to be fully assessed, and security on the ground assured before major increases in production can be expected."

The fresh IEA forecast closely reflected the expectations of the Organization of Petroleum Exporting Countries, which also cut its figures for world oil demand because of slumping global economic growth.

In other Nymex trading for October contracts, heating oil rose 0.05 cent to US$2.9480 a U.S. gallon (3.79 litres) and gasoline futures gained 1.85 cents to US$2.7567 per gallon. Natural gas for October delivery was up one cent at $3.895 per 1,000 cubic feet.