NEW YORK (CNNMoney.com) -- Oil rose on Monday as the dollar slid and stock market gains nullified earlier fears about interest rate hikes.
What prices are doing: Prices for April crude oil contracts, which expire on Monday, inched up 61 cents to settle at $81.29 a barrel. May crude climbed 72 cents to settle at $81.69 a barrel.
What's moving the market: After an unexpected rate hike from India's central bank spooked investors and sent oil prices plummeting, prices rebounded on a rising stock market and decline in the dollar against the euro
The Reserve Bank of India unexpectedly raised key interest rates by 0.25% late Friday in an effort to "anchor inflationary expectations and contain inflation going forward," according to G. Raghuraj, the Bank's Deputy General Manager.
This sparked fear in investors about global demand for crude, helping to fuel the dollar's rise against the euro and cap stock market gains earlier in the day.
Also propping up oil prices was a weaker greenback, which fell about 0.11% against the euro to $1.354, breaking a three-day rally over the European currency. A weaker dollar makes crude, which is priced in U.S. dollars, cheaper for foreign investors and, in turn, puts upward pressure on demand and prices.
What analysts are saying: Despite swings on Monday, oil prices continue to trade within analyst expectations.
James Cordier, president of Liberty Trading Group, said that India's interest rate increase is a "very powerful factor" affecting oil prices because it represents a reversal of the low interest rate policies that government's have held to support the economic recovery.
Still, he doesn't expect major declines in oil prices in the near term. "We're pretty close to the 2010 low already, after a $4 to $5 sell-off from this year's highs," he said.
But the threat of tighter monetary policy is expected to stifle oil prices in the short term, as large emerging markets attempt to balance growth with inflationary pressures.
"The biggest nations will try to slow their economies, and that's a barometer for oil demand," said Cordier.
As a result, investors will keep a hawkish eye on movements in the dollar, which is still trading near a 3-week high against the euro.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||4.36%||4.24%|
|15 yr fixed||3.39%||3.26%|
|30 yr refi||4.34%||4.22%|
|15 yr refi||3.38%||3.24%|
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