Oil rebounds on renewed supply concerns
Crude prices end higher, coming off a three-month low, as concerns about supply persist.
NEW YORK (CNNMoney.com) -- Oil bounced off a three-month low Thursday to settle higher for the first time this week amid renewed concerns about supply from the Middle East.
Light, sweet crude for September delivery gained $1.44 to settle at $120.02 a barrel on the New York Mercantile Exchange in a volatile trading day.
The contract rose nearly $3 earlier in the session following reports that Turkey's Baku-Tbilisi-Ceyhan (BTC) oil pipeline could remain closed for up to two weeks.
The BTC pipeline, which pumps nearly 1 million barrels a day, was attacked by a Kurdish rebel group Tuesday night.
"We rallied on the pipeline explosion news," Ray Carbone, president of Paramount Options, said from the floor of the NYMEX.
"But as the news sank in, the market started to realize that it's a temporary problem that can be fixed," he said.
Dollar strengthens. Crude prices came under pressure Thursday afternoon in response to gains made by the U.S. dollar against other currencies.
The euro fell to $1.532 from $1.5412 on Wednesday.
The 15-nation currency started to slide after European Central Bank president Jean-Claude Trichet warned that economic growth in Europe is expected to be weak during the third quarter, prompting speculation that the central bank will not raise interest rates to fight inflation.
The ECB also announced its decision to hold a key interest rate steady at 4.25%, as expected.
Oil prices often fall when the greenback gains ground, partly because a more robust dollar makes oil more expensive for overseas buyers.
Crude and other dollar-denominated commodities have also been popular with investors in the U.S. looking for a hedge against inflation. But when the dollar rises and inflation fears abate, these investors often exit the oil market.
Demand. The oil market continues to digest a government report out Wednesday that showed a surprise jump in the nation's crude stockpiles, as well as ongoing weakness in demand for gasoline.
Crude futures fell nearly $30 since hitting a record high of $147.27 on July 11, as traders responded to signs that global demand was becoming less robust.
"Concerns about sluggish demand remain intact," said Andrew Lebow, a energy broker at MF Global in New York.
Gasoline. Gas prices fell for the 21st day in a row, according to AAA. The national average price for a gallon of gas slipped one penny overnight to $3.849.
Hurricane season. The National Oceanic and Atmospheric Administration said it now projects an 85% probability of an above-normal hurricane season. That's up from the 65% probability that NOAA expected in May.
The updated forecast also called for a 67% chance of 14 to 18 named storms, including seven to 10 hurricanes. Three of those hurricanes could be category 3 storms, according to the forecast.
In May, the group was expecting six to nine hurricanes. 
