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UPDATE 3-Oil at $112 as Trichet warns on inflation

Published 06/30/2011, 04:29 AM
Updated 06/30/2011, 04:32 AM
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* Eurozone data at 0900 GMT to show inflation at 2.8 pct

* U.S. jobless report due at 1230 GMT

* IEA signals leave market uncertain (Recasts, updating prices, detail)

By Jessica Donati

LONDON, June 30 (Reuters) - Oil prices held close to $112 a barrel on Thursday as worries about inflation and an impending rate rise from the European Central Bank balanced against a weaker dollar.

"We are in a state of strong vigilance," Jean-Claude Trichet told the European Parliament's Economic and Monetary Affairs Committee in Brussels, using a phrase that has become synonymous with a rate hike.

The ECB meets for a policy meeting next week.

Euro zone data, due at 0900 GMT, are forecast to show inflation ticked up to 2.8 percent this month, well above the ECB's target of close to but below 2.0 percent.

ICE Brent crude was down 41 cents to $111.99 a barrel at 0815 GMT after jumping more than 3 percent on Wednesday.

U.S. crude was at $94.52 a barrel, down 25 cents, after gaining 2 percent in the previous session.

Trichet blamed high commodity and energy prices for the bulk of the increase in inflation.

"We are observing continued upwards pressure of prices. Inflation rates over the last few month largely reflects higher energy and commodity prices.

A weaker dollar supported oil prices. The dollar index , which measures the greenback against a basket of currencies, slipped 0.36 percent as the euro rallied on Trichet's address.

"It's not finished for Greece yet, there is a last vote... and Trichet has said inflation is on the upside primarily on energy prices which is hawkish. If the system tightens up well, Greece doesn't need a rate rise," Thorbjorn Bak Jensen, an oil analyst at Global Risk Management.

UNCERTAINTY

The International Energy Agency has sent conflicting signals to the market this week saying on Wednesday it is up to operators to decide whether to release crude oil or oil products as part of the emergency release plan.

"There is a huge misunderstanding on this point," the agency's head of energy markets and security told Reuters.

The table provided by the International Energy Agency on Monday, which showed the breakdown of crude and products on its website, was purely indicative, the IEA's Didier Houssin said.

But the agency could decide whether to repeat the release around the third week of July, Richard Jones, deputy executive director of the IEA, said late on Wednesday.

"The market is still assessing the release of emergency stocks by the IEA," said Ben Westmore, commodities economist at the National Australia Bank.

"The IEA has shown that it is ready to step in to meet coverage."

U.S. STOCKS TIGHTEN

In the United States, oil stocks tightened as crude imports fell while gasoline inventories fell unexpectedly.

U.S. crude stockpiles fell for a fourth straight week, government data showed, dropping 4.4 million barrels, much more than forecast, to 359.5 million barrels. Gasoline inventories declined 1.4 million barrels to 213.2 million barrels, against the forecast for a small increase.

"The long and sustained whittling away of surplus commercial inventory has continued," analysts at Barclays Capital led by Paul Horsnell said. "The overhang of U.S. crude oil and oil product inventories above their five-year average ... now stands only 1.3 million barrels above a 30-month low."

(Additional reporting by Florence Tan; editing by Jason Neely)

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