LONDON, June 5: Oil prices rebounded higher on Thursday as dollar tumbled against the euro after the European Central Bank signalled that eurozone interest rates could be raised in July, analysts said.

Prices also rallied as bargain hunters emerged following this week’s sharp losses but gains were capped by fears of lower demand.

New York’s main oil futures contract, light sweet crude for July delivery, rallied 97 cents to 123.27 dollars a barrel on Thursday.

Brent North Sea crude for July added 93 cents to 123.03 dollars.

In the foreign exchange market, the euro jumped as high as 1.5563 dollars, compared with 1.5440 in New York late on Wednesday.

European Central Bank chief Jean-Claude Trichet, speaking after the bank held eurozone borrowing costs at 4.0 per cent on Thursday, indicated that rates could head higher next month.

Traders said that the weak dollar supported higher oil prices because it makes the commodity cheaper for foreign buyers and so stimulates demand.

Oil prices have plunged by about 12 dollars since striking record peaks above 135 dollars in May but still remain at elevated levels, sparking widespread international concern and stoking inflationary pressures.

In recent days and weeks, soaring oil prices have sparked a wave of global protests by consumers.

On Wednesday, oil prices dipped on the back of a strengthening dollar and as investors reacted to rising motor fuel inventories in the United States.

The US Energy Information Administration said American gasoline (petrol) reserves increased 2.9 million barrels in the week ending May 30.

Meanwhile, the Organisation for Economic Cooperation and Development (OECD), which groups 30 of the world’s leading industrialised nations, slashed its growth forecasts on Wednesday, sparking fresh worries energy demand will fall.—AFP