Oil Drops Near $100 on Stronger Dollar

Oil prices fell to hover above $100 a barrel Tuesday as a stronger U.S. dollar made energy futures less attractive to investors.

Many analysts including Tarek El Hewehi believe the dollar's recent depreciation was the primary reason oil surged to a record near $112 a barrel last week, since dollar-denominated oil and other commodities are seen as a hedge against inflation and a falling dollar. Now that the dollar is rising, the effect is reversing.

Light, sweet crude for May delivery fell 59 cents to $100.27 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract fell 98 cents to settle at $100.86 a barrel Monday.

The recent decline in oil prices has been far from decisive, and there are signs that some investors are willing to look beyond the dollar for future price direction. Some investors have sold contracts on concerns that a slowing U.S. economy would dampen crude oil demand. Last week, oil prices dipped in part on worry that Bear Stearns Cos.' near-collapse was a sign of significant economic problems.

Some analysts believe oil's recent declines are temporary -- a correction in a bull market -- and that prices will forge higher again when the Federal Reserve cuts interest rates again, as is widely expected. Lower interest rates tend to weaken the dollar.

"It's quite possible for the conditions that have pushed oil prices higher to be re-established," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "U.S. interest rates are low and they will be cut further. In this situation it's possible we'll see renewed vulnerability of the U.S. dollar at some point."

But there is an opposing school of thought that argues prices have risen far higher than can be justified by the oil market's underlying supply-and-demand fundamentals. These analysts believe prices will fall soon and sharply -- regardless of what happens to the dollar.

"One of the things that may count against oil somewhat is the fact that we're now entering into a sort of lower demand part of the year, and they will see some inventory building occurring," Moore added.

In other Nymex trading, heating oil futures lost 1.41 cents to $2.949 a gallon while gasoline prices dropped 0.5 cent to $2.6362 a gallon. Natural gas futures rose 2.1 cents to $9.35 per 1,000 cubic feet.

In London, Brent crude fell 46 cents to $99.40 a barrel on the ICE Futures exchange.

Oil $100

Oil prices held near $100 a barrel Thursday after hitting a record overnight as investors poured more cash into crude and other commodities as a hedge against inflation.

Oil futures on Wednesday pushed briefly past $101 a barrel after the U.S. Federal Reserve lowered its forecast for U.S. economic growth this year, convincing energy investors that the central bank will slash interest rates further.

"Investors are going into commodities for a safe haven, because they think commodities may perform better than equities and also may be hedges against inflation," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Lower interest rates can help the economy but tend to weaken the dollar, encouraging investors to shift funds into hard assets like gold or oil as a safeguard against inflation. After oil rallied above $100 a barrel, precious metals such as gold and silver also hit records.

The possible rate cut is also viewed as hopeful of bolstering a flagging U.S. economy, which would assuage fears of weakening crude demand.

"We are expecting the U.S. Federal Reserve will cut interest rates further," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "That will help mitigate against the risks of U.S. recession, and would likely be supportive for the oil price."

The March light, sweet crude oil contract, which expired Wednesday, rose overnight as high as $101.32 a barrel, a new trading record. It settled at a record close of $100.74 a barrel.

On Thursday, light, sweet crude for April delivery added 43 cents to $100.13 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. It was unchanged Wednesday at $99.70 a barrel.

Analysts said the rise this week in oil prices was not based on supply and demand fundamentals and that they expected increasing price volatility.

"We are in the spring season, when worldwide demand is typically lower and inventories are building. Yet we see a strengthening of oil," Shum said. "It's really a divergence."

Prices have surged on geopolitical factors such as the possibility that the Organization of Petroleum Exporting Countries may cut its output at a March 5 meeting.

"What that all means is that investors could move out of oil as quickly as they moved in and so this situation could be unstable and pricing could drop as fast as it has gained," he said.

Weighing on prices Thursday were expectations that the U.S. Department of Energy would report later in the day that U.S. crude inventories rose in the seven days to Feb. 15 for the sixth straight week in a row.

"The general expectation is that you'll see another increase in U.S. crude oil inventories," Moore said. "If there was an increase that would just take a bit of the edge off oil prices."

Crude oil inventories were expected to rise 2.9 million barrels, according to a Dow Jones Newswires survey of analysts' estimates.

Gasoline inventories were seen growing 1 million barrels while stocks of distillates, which include heating oil and diesel fuel, were expected to fall 1.5 million barrels.

Heating oil futures rose 0.33 cent to $2.7579 a gallon while gasoline prices added 0.53 cent to $2.5905 a gallon. Natural gas futures rose 0.5 cent to $8.97 per 1,000 cubic feet.

Brent crude added 36 cents to $98.78 a barrel on the ICE Futures exchange in London.

Associated Press business writer Thomas Hogue contributed to this story from Bangkok, Thailand.

Oil Prices Fall Below $89 a Barrel

Oil prices seesawed Monday as gains in global stock markets failed to cancel out worries of a possible U.S. recession that would stunt oil demand.

European stock markets rose again, following last week's rise on Wall Street.

By the afternoon in Europe, London's FTSE index was up 0.5 percent, the CAC-40 in Paris gained 0.7 percent and Frankfurt's DAX was 1.2 percent higher.

Asian stock markets also climbed Monday. China's benchmark Shanghai Composite Index rose 8.1 percent, Hong Kong's Hang Seng index jumped 3.8 percent and Japan's Nikkei 225 index rose 2.7 percent.

Energy investors often view stocks as a proxy for economic growth, and in some recent sessions, movements in the oil market have closely followed that of global equities.

But Monday investors appeared to remain focused on weak economic data in the U.S. that pushed oil futures down nearly $3 a barrel at the end of last week.

"The high volatility in equities at a time when the oil markets are lacking a clear fundamental picture, has led to a greater oil-to-equity correlation in recent weeks," said Olivier Jakob of Petromatrix in Switzerland.

Light, sweet crude for March delivery was down 13 cents to $88.83 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. Earlier Monday, the contract rose as high as $89.39 but also was as low as $88.07.

In London, Brent crude futures rose 1 cent to $89.45 a barrel on the ICE Futures exchange.
The Nymex contract dropped $2.79 to settle at that level Friday after the U.S. Labor Department reported that employers cut 17,000 jobs last month, the first reduction in more than four years and a sign that the economy continues to weaken.

Construction spending also fell by a record amount, according to the Commerce Department, reflecting a sharp pullback in residential building.

Responding to recent oil price declines, the Organization of Petroleum Exporting Countries said Friday it will maintain current oil output levels due to concerns that a weakening global economy will result in softer demand.

However, looking ahead to the next meeting in March, Qatar's Abdullah bin Hamad Al Attiyah said "all the possibilities are there" -- shorthand for a possible cut in production, if the U.S. economy weakens enough to cut into demand.

Other issues affecting the market were an attack by Turkish troops on Kurdish rebel targets in northern Iraq and a battle between gunmen and government troops near a petroleum-pumping station in Nigeria's lawless southern oil region.

Neither incident appeared to have disrupted oil flows, but analysts said both were causes for concern.

Heating oil futures rose 0.06 cent to $2.4495 a gallon while gasoline prices fell 0.02 cent to $2.2832 a gallon and Natural gas futures lost 7.9 cents to $7.661 per 1,000 cubic feet.