LONDON (Reuters) - Oil prices edged lower on Friday, back toward $81 a barrel, as skepticism economic recovery was robust enough to spur a convincing rise in fuel demand curbed appetite to extend this week's powerful rally.
U.S. crude futures have rallied by around $10 a barrel this month and hit a year-high of $82 a barrel earlier this week, partly driven by a wave of positive corporate earnings.
Economic data has also provided some evidence of financial recovery and weekly government data showed a decrease in U.S. stores of gasoline, but overall fuel inventories are still much higher than a year ago.
"If you go through the corporate earnings results, the top line is still suggesting it's a difficult environment for improving sales," said analyst Jane Foley of FOREX.com.
"Whilst we are in an economic recovery phase, the recovery will be difficult."
U.S. crude for December fell five cents to $81.14 by 1100 GMT, while London Brent crude gained three cents to $79.54 a barrel.
While the price of oil has risen sharply in dollar terms, measured in other currencies its performance is more modest.
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Against the euro, the dollar touched a new low for the year after the euro breached the psychologically important $1.50 mark.
DOLLAR WEAKNESS
The dollar's weakness has been cited as a major factor in an oil rally that has pulled prices off a low of little more than $30 a barrel in December last year, not least because dollar-denominated oil is cheaper for non-dollar investors.
They have also moved out of the dollar and into riskier assets such as oil and equities as a limited return of confidence in the global economy has taken away the appeal of the world's central reserve currency as a relatively safe haven.
Oil producing countries that have large dollar reserves and receive income in petrodollars have voiced concern about dollar weakness and the speculation it can lure into oil markets.
They do not object to a certain level of speculation, but are nervous it could get out of control as they say it did when oil prices hit a record of nearly $150 a barrel in July last year, with the effect of destroying oil demand.
OPEC Secretary General Abdullah al-Badri said this week oil prices at around $80 were "a bit high" given the state of the world's economy.
