Oil hits record near $106 on weak dollar, OPEC

An oil facility seen at Venezuela's western Maracaibo lake in this November 5, 2007 file photo.

NEW YORK (Reuters) - Oil hit a record high near $106 on Thursday, fueled by the weak dollar and OPEC's decision to hold crude output steady.

U.S. oil settled up 95 cents at $105.47 a barrel after hitting a record $105.97 a barrel during the session. London Brent crude rose 97 cents to settle at $102.61 a barrel, after hitting a record $102.95.

The gains followed a $5 jump on Wednesday, after declining U.S. crude inventories and a decision by the Organization of the Petroleum Exporting Countries to maintain production levels despite consumer-nation calls for more oil.

Speculative buying as investors seek a hedge against inflation and a tumbling dollar also drove oil prices higher.

"The dollar is going down again and hedgers are buying commodities and this is all adding fuel to the fire," said Mark Waggoner, president of Excel Futures.

The dollar extended losses against the euro and the yen on Thursday after U.S. pending home sales were reported unchanged in January, doing little to allay investor worries over the deteriorating U.S. economic outlook.

Wednesday's surge marked oil's single biggest price gain in absolute dollar terms, according to Reuters database EcoWin, although there have been larger daily percentage price gains.

"The crude squeeze continues. The sharp rise in crude was exacerbated by a weak U.S. dollar, OPEC's decision to stand still," Citigroup said in a research note.

SPECULATORS, OPEC

OPEC agreed to hold production at current levels on Wednesday, despite calls from the Untied States to increase output to help consumers already battered by the mortgage crisis and the credit crunch.

"We did try to encourage (an increase in OPEC output). But if OPEC has decided they are not going to increase output, there's not a lot that the president can do. We don't control their decisions," White House spokeswoman Dana Perino said on Thursday.

Cartel members insist oil markets are well supplied and blame the surge in prices on speculators and "mismanagement" of the U.S. economy.

A U.S. government report Wednesday showed crude stocks in the world's largest consumer fell by 3.1 million barrels last week, against analysts' forecasts for an increase.

Distillate inventories, including heating oil, fell 4.8 million barrels, dropping for the fourth consecutive week, as colder weather hit the U.S. Northeast. Gasoline stocks rose for the 17th straight week.

OPEC will next meet in September to assess production levels and evaluate the market, although ministers could confer informally at a conference between consumers and producers in Rome on April 20-22.

Tensions between OPEC member Venezuela, a top oil exporter to the United States, and neighbor Colombia provided further support to the market.

Venezuela deployed forces toward the Colombian border on Wednesday, after a crisis erupted last weekend when Colombia launched a raid against rebels inside OPEC member Ecuador.

(Additional reporting by Maryelle Demongeot in Singapore;

Ikuko Kao in London; Robert Gibbons and Gene Ramos in New York)