UPDATE 5-Oil near $126 a barrel, eyes dollar

                                
 (Adds OPEC report, updates prices)
                                
 By Jane Merriman
                                
 LONDON, May 15 (Reuters) - Oil rose on Thursday, boosted
partly by weakness in the dollar versus the euro after strong
economic growth data from France and Germany.
                                
 U.S. crude <CLc1> was up $1.55 a barrel at $125.77 by 1410
GMT. 
                                
 London Brent <LCOc1>, whose nearby June contract expires
later on Thursday, was up 92 cents at $122.78.
                                
 Oil had retreated on Wednesday from a record high near $127
a barrel reached in the previous session, pressured by U.S.
government data that showed a bigger-than-expected rise last
week in distillate stocks. [EIA/S]
                                
 The data eased concern about a tightening distillates market
that has sent heating oil futures to record highs this week.
                                
 Strength in the euro against the dollar helped prices
recover.
                                
 The dollar was further undermined by data showing U.S.
industrial production fell 0.7 percent in April, reflecting the
biggest drop in the manufacturing sector since September 2005.
[nN15269262]
                                
 Oil and the U.S. currency have become closely intertwined in
recent months as investors have turned to oil as a hedge against
the falling dollar.
                                
 But strong emerging market demand and supply constraints are
the main forces behind oil doubling in price in the past year.
                                
 The commodities rally is generally based on a lack of supply
and increasing demand from developing countries, said Angus
McPhail, of UK investment manager Alliance Trust.
                                
 "OPEC is holding back," he said, referring to the
Organization of the Petroleum Exporting Countries output
controls, while oil companies are slow to bring on more oil.
"It's not an easy, quick fix."
                                
 OPEC has rebuffed calls from consumer countries to increase
output, and has pointed to the weak dollar and speculative
inflows into commodities as reasons for high prices.
                                
 
                                
 SAUDI VIEW
                                
 Oil's rise has more to do with financial market volatility
than fundamentals, Saudi Oil Minister Ali al-Naimi said on
Thursday, according to the text of a speech obtained by Reuters.
[nSEO267530]
                                
 "The short-term oil price gyrations seen in recent years are
more closely tied to the internal logic of the financial markets
than to underlying supply/demand fundamentals," Naimi said.
                                
 OPEC's Monthly Oil Market Report provided more evidence that
record oil prices are slowing demand growth.
                                
 The exporter group trimmed its forecast for the increase in
world oil demand in 2008 to 1.16 million barrels per day, 40,000
bpd less than its previous forecast. [nL15510849]
                                
 Investment bank UBS raised its projection for oil prices on
Thursday. The bank's oil economist Jan Stuart raised its 2008
U.S. crude forecast to $115 a barrel. [nL15322865]
                                
 The forecast for this year is the most bullish among banks
polled by Reuters. UBS previously was the most bearish
forecaster in the poll last updated on April 25. [O/POLL]
 (Additional reporting by Maryelle Demongeot in Singapore and
Alex Lawler in London; editing by James Jukwey)