Oil prices leapt higher on Thursday in a surge that took traders by surprise as the dollar tumbled against the euro and the rally drew in fresh investor cash following this week's sharp losses. New York's main oil futures contract, light sweet crude for July delivery, surged 5.49 dollars to close at 127.79 dollars a barrel. Brent North Sea crude for July jumped 5.44 dollars to settle at 127.54 dollars. Prices gained momentum late in the day, with analysts at a loss to explain the unusual jump. Bart Melek at BMO Capital Markets said that after comments from the European Central Bank "the dollar weakened again and that reenergized commodities. It is today's only change." In the foreign exchange market, the euro flirted with 1.56 dollars, compared with 1.5440 in New York late on Wednesday, as ECB chief Jean-Claude Trichet suggested that rates could head higher next month -- bad news for the US currency, in which oil contracts are priced. Oil prices have plunged since striking record peaks above 135 dollars in May but still remain at elevated levels, sparking widespread international concern and stoking inflationary pressures. On Wednesday, oil prices dipped on the back of a strengthening dollar and as investors reacted to rising motor fuel inventories in the United States. The US Energy Information Administration said American gasoline reserves increased 2.9 million barrels in the week ending May 30. That beat market expectations for a gain of just 825,000 barrels and pointed toward slowing demand in the world's biggest energy-consuming nation as consumers recoil from high gasoline prices. In the past few days, analysts had been increasingly calling for a sharp drop in oil prices, saying weakness in the US and global economy along with energy efficiency measures would curb demand. "Demand is now fully the focus of market participants. The demand stalwart, Asia, is finally buckling, as emerging economies in the region are cutting fuel subsidies," said John Kilduff at MF Global just before the late-day surge in prices. "The decline should resume next week, barring supply inhibiting developments." Meanwhile, the Organization for Economic Cooperation and Development (OECD), which groups 30 of the world's leading industrialized nations, slashed its growth forecasts on Wednesday, sparking fresh worries energy demand will fall. The OECD in a twice-yearly survey said its member economies were confronting "three adverse shocks" -- financial market uncertainty, a housing downturn and soaring food and energy prices.