UPDATE 3-Oil rises on declining inventories and weaker dollar

(Updates prices, adds analyst comments, changes dateline to
London)

By Bozorgmehr Sharafedin

LONDON, Sept 2 (Reuters) - Oil prices edged higher on
Thursday, supported by a sharp decline in U.S. crude stocks and
a weaker dollar, though gains were capped by an OPEC+ decision
to stick to its policy of only gradual increases to output.

Brent crude was up 30 cents, or 0.4%, at $71.89 a
barrel by 0917 GMT and West Texas Intermediate (WTI) crude
rose 28 cents, or 0.4%, to $68.87.

U.S. crude inventories dropped by 7.2 million barrels last
week, the Energy Information Administration said on Wednesday.

Hurricane Ida, meanwhile, has affected about 80% of the Gulf
of Mexico's oil and gas output. Oil refineries in Louisiana
could take weeks to restart.

"Crude oil processing will probably take considerably longer
to recover from the outages than crude oil production, which
suggests that crude oil stocks will increase in the coming
weeks," said Commerzbank analyst Carsten Fritsch.

The Organization of the Petroleum Exporting Countries (OPEC)
and allied producers including Russia, together known as OPEC+,
agreed on Wednesday to continue a policy of phasing out record
production reductions by adding 400,000 barrels per day (bpd) to
the market.

OPEC+ also raised its demand forecast for 2022 and faces
pressure from the United States to accelerate production
increases. U.S. President Joe Biden's administration said it was
"glad" the group had reaffirmed its commitment to raising
supply.

"What is not so certain ... is whether demand will be able
to grow as quickly as OPEC+ and the market predicts," said
Rystad Energy's head of oil markets, Bjornar Tonhaugen, citing
the risk of further coronavirus lockdowns to counter new
variants of the virus.

(Reporting by Bozorgmehr Sharafedin in London
Additioanl reporting by Aaron Sheldrick
Editing by David Goodman)