Oil prices jumped more than $5 US a barrel on Thursday as the U.S. dollar weakened.
On the New York Mercantile Exchange, the price of light, sweet crude for July delivery gained $5.49 US a barrel to close at $127.79 US.
The big rise in oil was driven by a retreat in the U.S. greenback against the euro after the head of the European Central Bank said interest rate increases could be coming.
The ECB's president, Jean-Claude Trichet, said some of the bank's governors favour an increase. He made the remark after the ECB left a key interest rate unchanged.
"Oil, which was very weak, rallied on those comments," said Phil Flynn, an analyst at Alaron Trading Corp. of Chicago.
Investors move into oil, which is denominated in U.S. dollars, when the greenback falls. The talks of a possibility of higher European interest rates weakened the U.S. dollar against the euro on Thursday. Many investors also buy oil as an inflation hedge.
The U.S. dollar's weakness has contributed to a run-up that has seen oil prices more than double over the past 12 months.
Oil peaked at over $135 US a barrel on May 22 but had given up some ground since, on demand concerns.
The Thursday surge in the price of oil helped propel the S&P/TSX Composite index to a gain of more than 292 points to a close of 14,983. The energy sub-group was up 4.0 per cent.
With files from the Associated Press
