Oil Prices Hold Gains Above $108 -- is $110 Next?

(Crude oil story updated for Wednesday settle price in crude contract and energy stock performance)

NEW YORK (TheStreet) -- Crude oil prices continued to hold new 30-month high levels on Wednesday, as global inflation and macroeconomic policy, the weakness of the U.S. dollar, the latest crude inventory data from the U.S. government, and the continuing unrest in the Middle East sent cross-currents into the oil trade.

The crude oil contracts traded down from their highest intraday levels by the close of the market, but held to key psychological trading levels with small percentage gains during Wednesday trading.

U.S. crude oil settled at $108. 83 on Wednesday afternoon. U.S. crude settled lower than its highest trade on Wednesday, which was above the $119 mark.

Brent crude was recently trading around the $122 mark.

The decision by the European Central Bank to raise interest rates for the first time since the financial crisis was the headline macroeconomic inflation issue only a day after China said it was again raising interest rates to tame inflation.

The euro rose on the ECB decision, while the U.S. dollar fell, and given the relationship between the dollar and crude oil, the currency action provided strength to the oil trade.

"We are seeing consolidation in the WTI trade around the $108 level, and the weakness in the dollar is adding further support to crude prices," said Matt Smith, commodities analyst at Summit Energy. "The next psychological level is $110. The market may not want to push WTI higher, but at the same time, there is no impetus right now to sell off either and oil prices could creep up in the next few days," Smith said. He also noted that the geopolitical risks, led by Yemen and Libya, remain in place, and all of the important weekly data points have now been released with the latest crude inventory data showing no surprises on Wednesday, and that the ISM non-manufacturing slip in March already factored in as a major economic data point.

Crude inventory increased by the two million barrels, a little more than the analyst consensus but the trend was in line with expectations. The government crude oil data bucked the data released by the American Petroleum Institute on Tuesday night, a common disconnect between the API and government numbers, with the API indicating a drawdown of close to 3 million barrels in the most recent week.

OPEC said on Wednesday at a conference in Paris that there was no shortage of crude oil in the market and that speculation was driving the trade.

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