(Agencies)
Updated: 2008-03-07 00:07

Oil prices steadied Thursday after nearing a record $106 a barrel as investors reacted to a surprise drop in US crude supplies and the dollar struck new lows against the euro.

The Greek oil refinery is seen from above in Aspropyrgos, west of Athens, in this Oct. 2007 aerial photo. Oil prices steadied on Thursday, March 6, 2008 after rising to a record above US$105 a barrel due to a surprising drop in US crude oil supplies and a new low for the dollar against the euro. Also supporting oil prices were OPEC's decision to hold its output steady and an escalating crisis involving three oil-producing South American nations. [Agencies]

Also supporting prices was an OPEC decision not to boost output and rising tensions on Venezuela's border.

By the afternoon in Europe, light, sweet crude for April delivery was unchanged from the previous day's close at $104.52 a barrel in electronic trading on the New York Mercantile Exchange. Prices briefly spiked to a record of $105.97 earlier in the day.

On Wednesday, the April contract had jumped $5 to settle at a record $104.52 a barrel and later rose to $104.95 in post-settlement electronic trading.

Earlier this week, oil prices broke the previous inflation-adjusted price record of $103.76, set in 1980 during the Iran hostage crisis.

In London, Brent crude fell 14 cents to $101.50 a barrel on the ICE Futures exchange.

"The primary factor causing the surge in oil prices is the surprising drawdown in crude inventories, which caused traders to really react quite dramatically," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Most analysts had expected the US Energy Department's Energy Information Administration to report oil stocks rose last week for the eighth straight time. Instead, the stocks fell 3.1 million barrels.

In Vienna, the Organization of Petroleum Exporting Countries said Wednesday it would hold production levels steady, at least for now. OPEC ministers cited falling demand in announcing their decision to hold production steady.

Related readings:  Reformers battle global oil price tide  OPEC hopes for oil price cut  China underlines stable prices following oil price hikes  Oil price hikes put refiners in a bind

The EIA report and OPEC announcement fed a new frenzy of investing in oil futures, which have risen to new inflation-adjusted records this week as the falling dollar drew investors to the market.

"Five dollars is an incredible gain," Shum said. "The overall oil market fundamentals are supportive of strong oil prices but not at this level, above $100. I would expect some profit taking to put a temporary halt to this rather large surge in pricing."

The dollar, meanwhile, fell to a new low against the euro, with the EU's shared currency climbing to $1.5370 after the European Central Bank and the Bank of England left their benchmark interest rates unchanged. The euro set its previous high mark of $1.5302 on Wednesday.

Analysts noted that US oil inventories are at historical highs despite last week's decline in crude supplies. Meanwhile, demand for gasoline is falling, and several forecasters have cut their oil demand growth predictions for this year.

Traders also worried about escalating tensions between oil producing countries in Latin America. Following a weekend attack by Colombia on leftist rebels in neighboring Ecuador, Venezuela moved tanks and soldiers to the Colombian border. Ecuador said Monday it had sent 3,200 soldiers to its border with Colombia.

In other Nymex trading, heating oil futures fell 0.86 cents to $2.9345 a gallon (3.8 liters) while gasoline prices lost 3.26 cent to $2.6095 a gallon. Natural gas futures added 2.1 cents to $9.762 per 1,000 cubic feet.