Oil steadied after hitting a new high near $106 on Thursday as a weak dollar helped prices to extend the previous day's gains prompted by a drop in US oil inventories and Opec's decision to keep output unchanged.

US light crude for April delivery struck a new record of $105.96 a barrel and was trading 35 cents higher at $104.82 by 1331 GMT.

London Brent crude was up 8 cents at $101.72, shortly after setting a record high of $102.95.

"The crude squeeze continues. The sharp rise in crude was exacerbated by a weak US dollar, Opec's decision to stand still," Citigroup said in a research note.

The dollar fell to a record low against the Swiss franc and hit a fresh trough against the euro on Thursday.  On Wednesday, US crude had settled $5.00 higher after US Energy Information Administration data showed a 3.1 million barrel drop in crude stocks, against analysts' forecast for an increase.

Distillate inventories, including heating oil, fell 4.8 million barrels, dropping for the fourth consecutive week as colder weather boosted heating demand in the US Northeast.

Gasoline stocks rose again to another 14-year high.

Citigroup said that US crude and product stocks altogether fell 4.5 million barrels, while a seasonal norm for this time of the year was a 3.3 million barrel drop.

Opec on Wednesday decided to leave its output unchanged, dismissing a call from the United States, the world's top energy consumer, to act to tame prices.

The oil producer group's ministers also decided to meet next in September and not to call a further extraordinary meeting. But they could confer informally at a conference between consumers and producers in Rome on April 20-22.

"This suggests to me the cartel would allow prices to move sharply higher without adding extra barrels to the marketplace," Robert Laughlin of MF Global said in a research note.

Tensions involving Venezuela, an Opec producer and the third largest oil supplier to the United States, provided further support to the market.

Venezuela deployed forces towards the Colombian border on Wednesday after a crisis erupted last weekend when Colombia launched a raid to kill rebels inside Ecuador, an Opec member.

Colombian Vice-President Francisco Santos said on Thursday he saw no risk of war with Venezuela or Ecuador. - Reuters