* U.S. crude up 4 pct to above $40, Brent up 3 pct to above
$41
* Oil rallies second day on focus over April output freeze
meeting
* Soaring gasoline demand, weak dollar helps U.S. crude
further
* Brent briefly at discount to U.S. crude first time since
Jan
(Recasts as rally extends to 2016 highs for both U.S. crude and
Brent)
By Barani Krishnan
NEW YORK, March 17 (Reuters) - Oil prices hit 2016 highs on
Thursday, with U.S. crude piercing the $40 psychological
barrier, on optimism that major producers will strike an output
freeze deal next month amid soaring gasoline demand in the
United States.
A weaker dollar .DXY after a Federal Reserve policy
decision on Wednesday that indicated two U.S. rate hikes this
year instead of four also drew oil buyers using currencies such
as the euro EUR= . FRX
OPEC kingpin Saudi Arabia and non-OPEC producers led by
Russia will meet on April 17 in the Qatar capital Doha,
increasing the likelihood of the first global supply deal in 15
years.
"The remote possibility that a coordinated supply control
effort comes from this meeting, assuming it even happens, has
put market bears on the defensive," said Pete Donovan, broker
with Liquidity Energy in New York.
Oil prices have surged more than 50 percent from 12-year
lows since the Organization of the Petroleum Exporting Countries
floated the idea of a production freeze, boosting Brent up from
around $27 a barrel and U.S. crude from around $26.
On Thursday, the front-month in U.S. crude's West Texas
Intermediate (WTI) futures CLc1 was up $1.52, or 4 percent, at
$39.98 a barrel by 12:45 p.m. EDT (1645 GMT), after setting a
2016 high at $40.08.
Brent crude's front-month LCOc1 rose $1.04 to $41.37,
after earlier reaching the year's peak of $41.60.
"For now, the market is staying well supported, and the
dollar is providing additional support," said Olivier Jakob, oil
analyst at Petromatrix. "It will be difficult to return to the
lows of the year."
WTI also briefly traded at a premium to Brent CL-LCO1=R on
Thursday, the first time since January, as traders piled into
the U.S. crude market on bets of an uptick in domestic oil
exports.
U.S. crude has gained further traction on smaller stockpile
builds of late, and surging gasoline consumption.
U.S. crude inventories last week climbed to its fifth
straight week of record highs but by just 1.3 million barrels, a
much smaller build than forecast, government data showed.
Gasoline demand rose 6.4 percent over the past four weeks from a
year ago. EIA/S