Oil tops $80 as dollar weakens
Prices continue to rise after an industry group says crude supplies fell and the U.S. dollar falls.
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LONDON (Reuters) -- Oil rose above $80 a barrel on Wednesday, extending the previous session's near 2% gain, following a U.S. industry report showing an unexpected fall in crude stocks and supported by a weaker dollar.
The U.S. dollar fell against a basket of currencies on Wednesday, helping to send gold prices to record highs and lifting oil. A weaker dollar makes commodities like oil cheaper for those holding other currencies.
U.S. crude for December rose 48 cents to $80.08 a barrel, after settling up $1.47 on Tuesday.
"I think a combination of the weaker dollar and inventories is lifting oil," said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt.
"After yesterday's data the market may be anticipating a similar result in today's inventory numbers, which is another reason for oil rising," Fritsch added.
Surprise inventory drop. Industry group American Petroleum Institute said late on Tuesday that U.S. commercial crude oil stocks fell 3.3 million barrels as imports dropped in the week to Oct. 30, versus expectations for a 1.4 million-barrel rise.
The data lifted optimism that the pace of oil demand recovery was picking up in the world's largest energy user, helping to send oil prices higher.
The API did say however that gasoline stocks rose by 501,000 barrels last week against forecasts for a 300,000-barrel increase, while distillate supplies increased by 1.8 million barrels versus predictions for a 1 million-barrel decline.
The API numbers came ahead of the more closely watched inventory data from the Energy Information Administration, due to be released later Wednesday.
Gold hit a record high above $1,090 per ounce as the dollar weakened and after the International Monetary Fund's 200-tonne sale of gold to India's central bank enhanced sentiment toward the metal.
The U.S. Federal Reserve ends its two-day meeting on Wednesday and, while it is expected to keep rates unchanged, there is speculation it might drop or alter its pledge to keep rates low for an "extended period," even as signs of a recovery mount.
Eyes on the Fed. Analysts warned that oil prices could suffer losses if there are any signs in the Federal Reserve's statement that monetary policy is going to be squeezed.
"Not long ago a few words from Saddam Hussein could turn prices on their head. Now a few words from the Fed is all it needs," brokers PVM said in its research note on Wednesday.
"If there is any hint of tightening, hang on to your hats. Few believe that the real economy has yet caught alight sufficiently to remove the oxygen."
The International Energy Agency (IEA) will "substantially" downgrade its long-term oil demand forecast in its annual energy outlook next week, the second cut in a row, the Wall Street Journal said, citing a person familiar with the report.
While the IEA's outlook is unlikely to affect the short-term view that the global economy's recovery from recession is lifting oil use, it is an important measure for oil companies considering whether to build refineries or drill new wells. 
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