Oil rises above $74 on bullish EIA demand outlook (Agencies)

Oil rose above $74 a barrel last week after the US Energy Information Administration raised its forecast for crude demand and prices this year, a sign it expected economic recovery to gain steam.

Oil reversed an earlier loss after the US dollar pared gains against other currencies. A firming dollar can make oil, priced in dollars, less attractive to investors.

US crude futures rose 36 cents a barrel to $74.12 as of 1:10 pm EST (1810 GMT), after dipping as low as $72.60. ICE Brent crude futures rose 9 cents to $72.21.

The EIA on Wednesday forecast world oil demand to rise 1.2 million barrels per day in 2010 from a year earlier, raising its forecast by 120,000 barrels a day from a previous one.

The agency also forecast that oil prices would average $81 a barrel in the second half of the year, well above current levels.

"A recovering economy and tighter supplies should help oil prices, even though we haven't seen inventories coming off yet," said Gene McGillian of Tradition Energy in Stamford, Connecticut. "After a sell-off last week, oil prices are now holding."

The EIA's demand forecast went counter to one earlier Wednesday from the Organization of the Petroleum Exporting Countries, which cut its 2010 demand estimate citing the slow pace of world economic recovery.

The dollar firmed against a basket of foreign currencies including the euro, on uncertainty over the outcome Europe's potential bailout of debt-strapped Greece, and after comments from US Federal Reserve chairman Ben Bernanke led some investors to expect the Fed could tighten US monetary policy soon.

A Greek bailout could alleviate jitters about the fiscal health of European economies and boost demand for riskier assets like oil, analysts said.

"News that major European economies have resolved to help Greece and possibly other peripheral economies within the euro zone is bullish for risk assets," said Brad Samples, an analyst at Summit Energy in Louisville, Kentucky.

Earlier Wednesday, oil prices had come under pressure after the American Petroleum Institute industry group reported a large increase in US crude inventories last week, and amid a fall in Chinese crude imports.

Crude stocks in the United States, the world's largest oil consumer, increased by 7.2 million barrels to 337.6 million barrels in the week to Feb 5, industry group American Petroleum Institute (API) said late on Tuesday.

The increase in crude inventories exceeded analysts' expectations for a 1.5 million barrel rise.

Official stocks data from the US Energy Information Administration (EIA) has been delayed to Friday from Wednesday as government offices were closed due to a snow storm.

Chinese crude imports slid in January, to 4.03 million barrels per day from their December peak of 5 million barrels per day, although they were still up 33 percent on the year. (Courtesy: China Daily)