Oil prices jump on dollar weakness, short covering

LONDON (Reuters) - Oil prices rallied on Thursday, with both North Sea Brent and U.S. crude oil rising sharply away from near six-year lows as the dollar weakened and investors bought back into futures markets to cover previous short sales.

The front-month Brent futures contract was due to expire later on Thursday, and traders said investors who had sold at higher levels in recent days and weeks were now buying back to take profit after recent heavy price falls.

Oil and other commodities are priced in dollars and tend to gain when the U.S. currency falls.

The dollar also fell against a basket of major currencies on Thursday, providing extra support for commodities.

The Swiss National Bank abandoned a three-year-old cap against the euro on Thursday, pushing the Swiss currency up sharply and depressing the euro and the dollar.

Oil and other commodities are priced in dollars and tend to gain when the U.S. currency falls.

Brent crude was up $1.50 cents a barrel at $50.19 a barrel by 1340 GMT, at a discount to U.S. crude, which was trading at $50.48 a barrel, up $2.00. The discount for North Sea crude oil reflected a very weak seaborne spot oil market, traders said.

"Today's jump has been very fast and appears to be mostly related to short-covering of futures contracts," said an analyst at a major European oil company.

Both crude oil benchmarks hit their lowest levels for almost six years earlier this week on a global oversupply of high quality oil.

Other news was mostly negative for oil.

In its monthly report, the Organization of the Petroleum Exporting Countries (OPEC) forecast demand for the group's oil would drop to 28.78 million barrels per day (bpd) in 2015, down 140,000 bpd from its previous expectation.

OPEC also trimmed its projection for the rate of growth in non-OPEC supply partly due to a slowdown in the U.S. shale boom.

But OPEC still expects U.S. oil production to increase by almost 1 million bpd even with the much lower oil prices.

Bank of America Merrill Lynch lowered its oil forecasts on Thursday saying that Brent could go as low as $31 by the end of the first quarter of 2015.

Iraq plans to boost monthly crude oil exports from its southern ports to a record high level in February, trade sources said on Thursday.

(Additional reporting by Henning Gloystein in Singapore; Editing by William Hardy and Christopher Johnson)