Oil prices rise on stocks, dollar

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NEW YORK (CNNMoney.com) -- Oil prices closed higher Monday, recovering from earlier losses, as investors responded to rising stock prices, a weaker U.S. dollar and reports of a pipeline attack in Nigeria.

Light, sweet crude for April delivery rose $1.10 to settle at $47.35 a barrel in New York. Earlier in the session, oil slumped 3% to trade below $44 a barrel.

"The dollar is weak and the Dow is stronger," said Peter Beutel, an oil industry analyst at Cameron Hanover. "Those are two factors that seem to be helping the market."

Stocks rose in afternoon trading, with the major indexes on track to post gains for their fifth session in a row, as bank stocks rallied and Federal Reserve chairman Ben Bernanke hinted Sunday that the recession could end later this year.

Many oil traders view the stock market as a proxy for the overall economy and a barometer of future oil demand. As a result, oil prices often rise when stocks rally.

Meanwhile, the dollar fell to a 5-week low against the euro as investors' appetite for risk grew, and demand for the greenback as a safe-haven waned.

A less robust buck makes oil, which is priced in dollars, a more attractive asset for overseas buyers. And many investors view oil and other commodities as a hedge against inflation.

The market is also responding to reports of a militant attack on a Chevron oil pipeline in the Niger Delta. The attack could result in a loss of around 11,500 barrels per day of output, according to Reuters. Nigeria is Africa's largest oil producer.

OPEC: The Organization of the Petroleum Exporting Countries decided Sunday against further supply cuts out of concern for the global economy and said current reductions are beginning to remove excess oil from the market.

The 12-member cartel, which produces about one third of the world's oil, pledged to more strictly enforce previously announced output reductions. The group is scheduled to meet again in May.

OPEC has been scaling back production since September, aiming to slash output by 4.2 million barrels per day in order to prop up falling oil prices. Analysts estimate that OPEC has complied with 80% of its reduced output quotas.

The price of oil tumbled more than $100 a barrel in the second half of 2008 as the world's once-robust demand for energy evaporated amid the global financial crisis.

So far this year, the price of oil has bounced between $34 and $49 a barrel as investors respond to OPEC's production cuts while also remaining wary of anemic demand.

Looking ahead, OPEC is not likely to cut output at its May meeting, said Tom Pawlicki, energy analyst at MF Global in Chicago.

"They're already doing an effective job at taking excess oil off the market," he said. Additionally, tentative signs of an economic recovery could lead to stronger demand "in the next few months" and should help "promote higher prices," he added.