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.

Hewehi Thinks Oil To Reach $120

Oil futures retreated from a new overnight record above $103 as the dollar gained strength and Turkish forces withdrew from northern Iraq, removing two of the reasons underpinning crude's dramatic 19 percent rise from earlier this month.

But many analysts believe the declines may be temporary, and that oil is poised to rise above $103.76 a barrel. That's the price many believe to be oil's all-time high on an inflation-adjusted basis, set in early 1980 during the Iranian hostage crisis.

Gasoline and diesel prices, meanwhile, continued to soar. Gas prices rose 0.3 cent overnight to a national average of $3.164 a gallon, creeping closer to last May's record of $3.227 a gallon, according to AAA and the Oil Price Information Service. Diesel prices jumped 1.5 cents to a new record national average of $3.642 a gallon.

While most Americans fuel their cars with gasoline, most of the products they buy are transported by trucks, trains and ships that burn diesel. While gas prices are unlikely to rise as high as $4 a gallon, diesel may well pass that psychologically important level this spring, boosting prices of nectarines, computers, clothing and virtually every other consumer product, said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J.

"It's everything that gets shipped," Kloza said of diesel fuel's impact on the economy. "That is the one that is much scarier."

Gas and diesel prices are following crude oil, which spiked to a new record of $103.05 overnight. In midday trading on the New York Mercantile Exchange, light, sweet crude for April delivery fell 44 cents to $102.15 a barrel.

The dollar rose against the euro Friday, reversing one of the factors that has attracted huge flows of investment capital to the oil market. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling. That logic tends to reverse itself when the dollar weakens.

Also giving investors reason to sell was Turkey's decision to withdraw its forces from northern Iraq, which they invaded earlier this week in search of Kurdish rebels. Turkish attacks on Kurds in northern Iraq -- and the concern that Kurds would retaliate by cutting off oil supplies -- have helped propel oil to new records in recent months.

Traders also continue to fret over OPEC, which meets next week to consider production levels. The prospect that the Organization of Petroleum Exporting Countries might cut production levels has helped fuel oil's recent rise. But with prices holding above $100, most analysts now expect OPEC to hold production steady.

Despite oil's modest retreat Friday, many analysts believe the investment flows that have pushed prices higher this year are not about to dry up.

"We've just got a huge, huge speculative drive going on here," said Jim Ritterbusch, president of Ritterbusch and Associates, an energy consultancy in Galena, Ill. "The fresh buying brings in new buying."

Many analysts believe the underlying fundamentals of oil supply and demand do not justify such high prices. Some predict speculative investing could push oil prices as high as $120, while others argue prices have formed a bubble, and could crash back to the $70 range.

Other energy futures also fell Friday. In other Nymex trading, March heating oil fell 0.35 cent to $2.8421 a gallon while March gasoline futures fell 1.57 cents to $2.48 a gallon. April natural gas futures fell 8.8 cents to $9.355 per 1,000 cubic feet.

In London, Brent crude futures fell 52 cents to $100.38 a barrel on the ICE Futures exchange

Oil Falls

Oil prices dropped Friday after rising more than $2 a barrel in the previous session as new U.S. trade deficit figures spurred hopes that the U.S. economy might escape a serious downturn.

The U.S. Commerce Department said Thursday the trade deficit fell in December and for 2007 as a whole -- an indication the U.S. is exporting more goods. This led investors to think U.S. energy demand would not be as weak as feared.

U.S. Federal Reserve Chairman Ben Bernanke's suggestion that the central bank is prepared to again cut interest rates also helped boost light, sweet crude to settle at $95.46 a barrel Thursday, an increase of $2.19 on the New York Mercantile Exchange.

That was its highest close since Jan. 9. The contract has risen in 4 of the past 5 sessions, adding more than $6 in a little over a week.

On Friday, the March contract lost 36 cents to $95.10 a barrel in Asian electronic trading by midafternoon in Singapore.

Bernanke said the Fed is ready to act again in response to deteriorating economic conditions. Interest rate cuts support oil prices because they tend to weaken the dollar. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

Energy investors were also buying after a federal judge's decision Wednesday to confirm an earlier ruling freezing $300 million in a bank account owned by the Venezuelan state oil company.

Exxon Mobil is challenging Venezuela's nationalization of an oil project. A British court's earlier decision to temporarily freeze up to $12 billion in Venezuelan oil assets drew threats from President Hugo Chavez to cut off all oil sales to the U.S.

Weighing on oil prices were forecasts this week from the Energy Department and the International Energy Agency, an energy policy adviser to the industrialized world, that call for slower demand growth this year due to weakening economies.

Heating oil futures dropped 1.08 cents to $2.6558 a gallon while gasoline prices declined 0.83 cent to $2.4678 a gallon.

Natural gas futures lost 0.7 cents to $8.765 per 1,000 cubic feet.

Brent crude futures fell 38 cents to $94.78 a barrel on the ICE Futures exchange in London.

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.

Oil Futures Jump Back Above $90 a Barrel

Oil futures jumped back above $90 a barrel Friday, adding to the previous session's sharp gains on a view that the recession worries that pulled prices lower in recent weeks may have been overblown.


At the pump, meanwhile, gas prices fell below $3 a gallon for the first time in weeks.
Energy investors were heartened by recent moves by the Federal Reserve and Congress to shore up the economy, which could prevent oil demand from slowing as much as many had feared.

"This week's emergency interest rate cut by the Fed and the economic stimulus plan proffered by Congress appear to have, for now, stemmed fears of a looming recession in the U.S.," said Addison Armstrong, director of exchange traded markets at TFS Energy Futures LLC, of Stamford, Conn., in a research .

Word that Chinese oil demand grew by 6.4 percent in December, the highest rate in months, contributed to oil's advance.

Concerns that demand from the booming Chinese and Indian economies is outstripping global oil supplies helped push oil to records above $100 earlier this month.

Light, sweet crude for March delivery rose $1.30 to settle at $90.71 on the New York Mercantile Exchange after rising as high as $91.38. Oil futures last closed above $90 last Friday.

While investors believe the government's $150 billion stimulus plan and the Fed's rate cuts will stave off a serious economic slowdown, rate cuts also tend to weaken the dollar, giving investors another reason to buy oil futures. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

"When (investors in foreign) countries go to buy oil, they're buying it on sale," said James Cordier, president of Liberty Trading Corp., in Tampa, Fla.

Many analysts believe the weakening dollar helped draw speculative investors into oil markets this fall and winter, driving oil prices above the $100 mark.

While oil prices are on the rebound, gas prices slid 0.8 cent Friday to a national average of $2.998 a gallon, their first dip below $3 in weeks. Retail prices tend to lag the futures market, meaning that if oil prices continue to rise, gas prices may halt their decline and move back above $3.

Other energy futures also rose Friday. February heating oil futures jumped 4.28 cents to settle at $2.5191 a gallon on the Nymex while February gasoline futures added 3.54 cents to settle at $2.3182 a gallon. Heating oil and gasoline prices were supported by news that Valero Energy Corp.'s 255,000 barrel a day refinery in Aruba was shut down due to a fire.

February natural gas futures rose 18.1 cents to settle at $7.983 per 1,000 cubic feet.
In London, March Brent crude rose $1.83 to settle at $90.90 a barrel Friday on the ICE Futures exchange.

Associated Press writers Pablo Gorondi in Budapest and Thomas Hogue in Bangkok, Thailand, contributed to this report.