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Oil prices fall on U.S. treasury secretary's comments on dollar

Oil prices fall on U.S. treasury secretary's comments on dollar

Crude oil futures fell by more than $4 per barrel on Monday, retreating from the previous session's record rally as the U.S. treasury secretary indicated he would not rule out intervening to shore up the U.S. dollar.
Light, sweet crude for July delivery fell $4.19 to settle at $134.35 a barrel in volatile trading on the New York Mercantile Exchange on Monday, easing back from a nearly $11 per barrel spike on Friday predicated on a number of political and supply concerns.
The slide on Monday began with traders looking to lock in profits Friday's more than eight percent spike _ the biggest single-day jump ever. That came after an increase Thursday of almost US$5.50, taking oil futures more than 13 percent higher in just two days, easily a record on the Nymex.
With concerns mounting about the state of the U.S. economy _ a key issue in a presidential election year _ Treasury Secretary Henry Paulson in an interview with CNBC that he would not rule out the possibility of intervening to stabilize the dollar. Paulson declined to speculate about what the government might do, but his comments helped boost the dollar against the euro, pushing crude down. The comments amplified a decline sparked by investors locking in profits from Friday's rally.
Many investors buy commodities such as oil as a hedge against inflation when the dollar weakens. But on Monday, the effect reversed; the dollar gained ground, making oil less effective as an inflation hedge. Also, a stronger dollar makes oil more expensive to investors overseas.
In London, July Brent crude fell $3.78 to settle at $133.91 a barrel on the ICE Futures exchange.
Traders and analysts said profit taking from the previous week started the day's slide.
Meanwhile, Saudi Arabia said Monday it will call for a meeting of oil producing countries and consumers to discuss soaring oil prices. Information and Culture Minister Iyad Madani said the kingdom will work with OPEC to "guarantee the availability of oil supplies now and in the future." He also said the current price of oil is unjustified.
Also Monday, one of the factors that underpinned Friday's rally _ an Israeli cabinet minister's comment that his nation might attack Iran if it did not halt its nuclear program _ appeared to dissipate over the weekend as Israeli Prime Minister Ehud Olmert distanced himself from the comments and other officials noted that the minister, Transportation Minister Shaul Mofaz, had not been expressing official government policy.
Oil's sharp jump last week began Thursday, after European Central Bank President Jean-Claude Trichet suggested the bank could increase interest rates in July to counter rising inflation. That sent the dollar falling against the euro.
Friday's jump came after Morgan Stanley analyst Ole Slorer predicted that strong demand in Asia and tight supplies in the Western Hemisphere could drive prices to a once-unthinkable US$150 a barrel by early July.
But other factors support high oil prices. An explosion last week at a natural gas production facility in Australia has boosted demand for diesel by that country's mining sector, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. In Nigeria, a major U.S. oil supplier, a strike later this week could take 450,000 barrels in daily oil supplies off the market, Armstrong said. Both events highlight how tight oil supplies are.
The gains in crude have pulled gasoline prices up sharply worldwide. Even so, there have been few signs of weakening global demand for crude oil, despite the economic slowdown in the U.S. and recent moves by India, Malaysia and other Asian countries to raise gasoline prices after they cut subsidies.
It will take some months to see if there a decline in demand, said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "As we go deeper into U.S. summer driving season, we may see demand drop, and that could help pull back pricing."
But he pointed out that in China, a huge oil consumer, authorities have refrained from raising state-set retail prices in recent months, suggesting that demand there may not be affected.
In other Nymex trading Monday, July gasoline futures fell 15.4 cents to settle at $3.394 a gallon, and July heating oil futures fell 9.7 cents to settle at $3.877 a gallon. July natural gas futures fell 8.9 cents to settle at $12.604 per 1,000 cubic feet.
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Associated Press Writers John Wilen in New York, Pablo Gorondi in Budapest, Hungary, and AP Business Writer Malcolm Foster in Bangkok, Thailand, contributed to this report.


Updated : 2021-05-12 07:10 GMT+08:00