Oil gains on weaker dollar, though U.S. storage build limits rise

NEW YORK (Reuters) - Oil prices rose on Wednesday, tracking a weaker dollar despite U.S. government data showing a higher-than-expected build in crude inventories last week.

Benchmark Brent and U.S. crude oil were both up about half a percent, although the upside was capped by the bearish report on U.S. crude stockpiles.

Crude inventories rose by 8.2 million barrels last week, the U.S. Energy Information Administration said, above analysts' calls for a 5.1-million build. It was the 11th straight week that storage levels hit 80-year highs. [EIA/S]

Brent was up 63 cents at $55.74 a barrel by 12:07 a.m. EDT (1607 GMT). U.S. crude gained 74 cents to $48.25.

Oil prices did retreat after the EIA data, with U.S. crude briefly turning negative, before regaining upward momentum.

"If it weren't for the dollar being down today, oil (should)be down a lot more," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York.

"These are bearish numbers, definitely bearish," he said, referring to the inventory report.

Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut, shared the view that oil prices were higher than they deserved to be.

"There seems to be a reluctance by the bears to be aggressive when fresh lows are put in the market," McGillian said.

A weaker dollar makes commodities denominated in the greenback cheaper for holders of other currencies, typically boosting demand for such raw materials. [USD/]

The dollar was down nearly 0.4 percent against the euro after disappointing U.S. durable goods orders for February.

Europe's largest economy Germany, meanwhile, saw business morale rise for the fifth month in a row in March, hitting its highest since July 2014. In France, business morale peaked at near 3-year highs.

Traders said oil prices could still end the day lower.

"I'm kind of happy that we saw this little strength this morning as it will help me sell into it," Zahir, an oil bear, said. "But it will be dollar-driven action today."

(Additional reporting by Himanshu Ojha and Christopher Johnson and Henning Gloystein in Singapore; Editing by Dale Hudson, William Hardy and Chris Reese)

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