Oil rises toward $54, appetite for risk revives

Oil rose above $53 a barrel on Thursday as expectations that economic stimulus packages might be working offset the impact of high oil inventories.

U.S. light crude was trading $1.11 up at $53.88 a barrel by 1209 GMT, after hitting a session high of $53.96. It was recovering from a decline of more than a dollar on Wednesday. London Brent crude rose $1.42 to $53.17.

Oil derived some support from a rally in Asian shares, which rose to their highest in 11 weeks following upbeat U.S. economic data on Wednesday, although the FTSEurofirst index of leading European shares eased.

Recovering equities as well as a generally weaker U.S. dollar have helped to underpin oil but the rise could be short-lived because of weak fundamentals, analysts said.

"Oil stocks are still very high and if you look at the investment flows, volumes have been very light," said Olivier Jakob of Petromatrix.

A weaker dollar makes commodities priced in the U.S. unit relatively cheap for holders of other currencies, which can attract investors.

Oil has fallen from highs above $150 last July as the global economic crisis dented energy demand but it has recovered from lows below $35 touched in December partly as a result of export curbs by the Organization of the Petroleum Exporting Countries.

There are signs prices are at least stabilising. A Reuters poll on Wednesday showed a consensus view of analysts that oil prices would average around $50 this year.

"We are seeing some optimism, we are seeing some return of risk appetite, both of which we have not seen for a while…" Mike Wittner, Societe Generale's global head of oil Research, said. But he too pointed to the high inventories.

On Wednesday, U.S. government data showed an increase in crude oil stocks to their highest levels since 1993.. The data also showed falling demand.