Greenback strength supports oil

Oil held near $71 a barrel, supported by a weaker US dollar and as some investors viewed the previous session's fall to a near two-month low as a buying opportunity.

Industrial metals including copper also rose, although European shares were almost flat after an earlier rally as banking stocks were dragged down by worries over euro zone sovereign debt problems. US equities traded slightly lower.

US crude for March was up 10 cents at $71.29 a barrel by 1453 GMT. The contract fell as low as $69.50 on Friday, the lowest since Dec. 15. Brent crude rose 15 cents to $69.74.

``We dipped below $70 on Friday, which is the bottom of the recent trading range, and some used that as a buying opportunity,'' said Carsten Fritsch, analyst at Commerzbank, referring to US crude.

``Given weak fundamentals and doubts about economic recovery, it's only a matter of time before prices start heading lower again.''

A cold snap in the US mid-Atlantic region, an area heavily dependent on home heating oil and natural gas supplies, and escalating tensions between Iran and western nations also lent support to prices.

The US dollar was weaker against a basket of currencies. Dollar weakness makes crude and other dollar-priced commodities cheaper for holders of other currencies, and tends to support oil prices.

Major commodity markets are testing 200-day moving averages after sharp sell-offs in the past three weeks, but that important support level appears to have held for US crude, as well as copper and gold.

``For now, we would venture to say that a measure of stability could be with us over the next day or two,'' said Edward Meir, analyst at MF Global, in a report.

``However, most charts still look precarious and at best, rallies could return values back over broken trend lines with little assurance that these gains will be sustained.''

The United States and Germany have threatened carefully targeted new sanctions against Iran, which gave instructions on Sunday for the production of higher-grade nuclear reactor fuel.

Potential disruptions to supply in Nigeria also supported prices. A militant group said on Sunday it had attacked a Shell oil pipeline in the Niger Delta but the company said it had no reports of any such sabotage.

Oil fell 2.7 percent on Friday as a tepid employment report in the United States, the world's top energy consumer, heightened worries of a sluggish recovery in fuel demand. It has lost nearly 10 percent this year.

- Reuters