Oil up, but sharply off day's high on U.S. crude build

By Barani Krishnan

NEW YORK (Reuters) - Oil futures rose on Wednesday, helped by a weak dollar, but crude retraced most of its gains after the U.S. government reported another weekly build in U.S. crude inventories despite strong refinery runs.

Brent crude's front-month contract was up 40 cents, or 1 percent, at $39.54 a barrel by 11:49 a.m. EDT (1549 GMT). Earlier, it rose 3 percent to a session high of $40.61.

U.S. crude's front-month rose 30 cents, or 0.8 percent, to $39.58, reaching $39.85 earlier.

U.S. crude inventories rose 2.3 million barrels in the last week, the U.S. Energy Information Administration reported. That was less than the 3.3 million-barrel build analysts had expected. Still, oil bulls were disappointed because the build came even as refinery utilization rates rose 2 percentage points to 90.4 percent of total capacity, the highest rate seasonally since 2005.

"The data poses a bit of a conundrum, in that crude stocks still increased so much despite strong refining runs and an apparent drop in imports," said Matt Smith, director of commodity research at New York-headquarter energy data provider ClipperData.

Dominick Chirichella, senior partner, Energy Management Institute, New York, concurred. "Overall, I would categorize the report as more neutral than anything else."

Oil rose early, following share prices on Wall Street which hit 3-month highs. Oil also got a boost from a weak dollar, which fell to a near two-week low, making oil and other commodities denominated in the greenback more attractive to users of the euro and other currencies.

Both Brent and U.S. crude fell about 3 percent on Tuesday on concerns about swelling global oil supplies, including new output from Kuwait and Saudi Arabia.

Oil prices have risen about 50 percent over the past two months after major producers within and outside the Organization of the Petroleum Exporting Countries floated the idea of freezing production at January's highs.

On Tuesday, Saudi Arabia and Kuwait, two of OPEC's biggest exporters, said they would resume production at the jointly operated 300,000-barrels-per-day Khafji field even with a meeting on the production freeze set for April 17.

"The fact that the announcement comes so shortly before the meeting in Doha is a disastrous sign," said Commerzbank oil analyst Carsten Fritsch. "After all, it gives the impression that the lip service paid to freezing oil production is nothing but hot air."

(Additional reporting by Dmitry Zhdannikov in LONDON; Editing by David Evans and Nick Zieminski)