Oil below $98 in Europe amid stronger dollar, concerns of weaker U.S. demand

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Monday May 16, 2011, 7:52 am
By Pablo Gorondi, The Associated Press

Oil prices fell below US$98 a barrel Monday as the dollar strengthened against the euro and investors worried that soaring U.S. fuel costs were undermining crude consumption.

By early afternoon in Europe, benchmark crude for June delivery was down $1.75 to $97.90 a barrel in electronic trading on the New York Mercantile Exchange. The contract settled at $99.65 per barrel Friday, up 68 cents.

In London, Brent crude for June delivery was down $1.38 to $112.45 a barrel on the ICE Futures exchange.

A stronger dollar weighed on oil prices by making commodities like crude more expensive for investors trading in other currencies.

The euro stood at $1.41 in after falling to as low as $1.4046 earlier in the session, its lowest level since March 29.

"The greenback has soared ... on worries that European finance ministers may fail to prop up Greece as it attempts to restructure its debt," said Edward Meir at MF Global in New York.

Analysts said the euro also had been hurt by the arrest in New York of International Monetary Fund managing director Dominique Strauss-Kahn on charges of sexual assault.

"The arrest of the IMF chief obviously weakens the perspective of the euro, given the bank's massive involvement in bailout measures," said a report from JBC Energy in Vienna.

Investors were also awaiting the release later Monday of data on U.S. manufacturing and the housing market.

With gasoline topping $4 a gallon in some parts of the U.S., some traders are worried oil demand growth will eventually suffer in the world's largest crude market.

President Barack Obama said Saturday the U.S. would ramp up oil production by extending existing leases in the Gulf of Mexico and off Alaska's coast and holding more frequent lease sales in a federal petroleum reserve in Alaska. However, Obama said the measures wouldn't immediately bring down gasoline prices.

"Positive news on the demand side are currently the exception to the rule," consultancy JBC Energy said in a report.

Oil has retreated from a 30-month high near $115 at the beginning of the month amid a rally of the dollar, which has made crude more expensive for investors with other currencies.

"Crude oil continues to shadow the dollar to a large degree," Ritterbusch and Associates said in a report. "We still look for high negative correlation between the dollar and oil."

In other Nymex trading in June contracts, heating oil fell 3.49 cents to $2.9073 a gallon and gasoline dropped 4.39 cents to $3.0305 a gallon. Natural gas futures slid 2.3 cents to $4.223 per 1,000 cubic feet.