Oil Prices Fall Thanks to Strengthening U.S. Dollar

May 2, 2008
Strength of the dollar is linked to a better-than-expected performance by U.S. manufacturing.

World oil prices continued lower in Asian trade on Friday, May 2, after the U.S. dollar strengthened to its highest level since late March, according to dealers.

New York's main oil futures contract, light sweet crude for June delivery, slipped 57 cents to 111.95 dollars per barrel.

The benchmark contract had dropped 94 cents to close at 112.52 dollars per barrel on Thursday at the New York Mercantile Exchange.

Prices have eased since striking a record high of 119.93 dollars in New York on April 28 during a Scottish refinery strike and related pipeline closure.

Brent North Sea crude for June delivery fell 35 cents to 110.15 dollars a barrel, after settling at 110.50 dollars on Thursday in London. The contract hit an all-time peak of 117.56 on April 25.

Victor Shum, senior principal at energy consultancy Purvin and Gertz in Singapore, says oil has pulled back primarily because of the dollar's rise and supply-side issues have been resolved.

The dollar will continue to steer movement in oil prices, says Shum. "In the near term, there is still a bit of support at the 110-dollar level and some market participants might view this as a buying opportunity. It is a key support level."

The U.S. currency fell to a record low of 1.6019 dollars to the euro on April 22 but has since recovered, changing hands at 1.5471 dollars in Asian trade on May 2 after shooting as high as 1.5437 on May 1. It was the greenback's strongest showing since March 25.

A stronger U.S. unit makes dollar-priced crude more expensive for foreign buyers and tends to dampen demand. Analysts say the dollar strengthened following a better-than-expected reading on U.S. manufacturing activity and growing speculation that U.S. interest rates will stabilize.

Crude prices fell sharply on April 30 in response to a bigger-than-expected rise in crude oil reserves in the United States, the world's biggest energy consumer, analysts said.

The U.S. government reported U.S. crude inventories rose 3.8 million barrels in the week ending April 25, far stronger than market expectations for a gain of 1.5 million barrels.

Supply concerns lifted somewhat on May 1 after workers at ExxonMobil's Nigerian subsidiary ended an eight-day strike. The strike and attacks on pipelines belonging to other companies in the southern Delta region badly hit production in Africa's biggest oil producer and helped push world crude prices towards 120 dollars earlier this week.

Workers at the Scottish refinery returned to work on Tuesday, April 29, after their strike.

Copyright Agence France-Presse, 2008

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