Oil Prices Jump Above $106

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"USD weakness, turmoil in the Middle East continued to stoke supply concerns. The different approaches to monetary policy could set the stage for a period of prolonged dollar weakness, traders said"

Oil prices jumped Thursday, rising above $106 a barrel, as the U.S. dollar weakened and turmoil in the Arab world continued to stoke supply concerns.

The main U.S. oil contract, West Texas Intermediate, for May delivery was up $2.07 to $106.34 a barrel. Brent crude, the European benchmark, rose $1.90 to $117.03 a barrel.

The rally came as the dollar slumped 0.4% against the euro on speculation the European Central Bank is poised to raise interest rates to ward off rising inflation.

Eurostat, the European Union's statistics agency, estimated Thursday that euro area inflation rose 2.6% in March, up from 2.4% in February.

While inflation has also ticked higher in the United States, the Federal Reserve is not expected to raise interest rates soon, even as the central bank signals an end to its asset purchase program.

The different approaches to monetary policy could set the stage for a period of prolonged dollar weakness, traders said, since it would revive the so-called carry trade.

The carry trade is when investors use the currency of a country with low interest rates to fund investments in countries with higher rates. It tends to push the target currency, in this case the dollar, lower in the market.

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