Oil Prices Dive On Stronger Dollar

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World oil prices slumped on profit-taking last Friday, after hitting two-year highs of over $88 the previous day, as traders took their cue from a stronger dollar and speculation over a Chinese interest rate rise. 

New York’s main contract, light sweet crude for December, fell as low as $85.51per barrel, before recovering to $86.62, down $1.12 from Thursday’s closing level.

Brent North Sea crude for December dropped 95 cents to $87.86 in London trade.

“The price of (New York crude) has shed more than two per cent … and dropped below the $86-mark after reaching a two-year high on Thursday,” Commerzbank analyst, Carsten Fritsch said.

“This price slump can be explained by a general weakness of commodity prices, triggered by the stronger United States dollar, and rumours of an imminent interest rate hike in China.”

World stock markets meanwhile dropped on Friday and the euro slid against the dollar, as investors fretted over indebted eurozone nations, despite European Union heavyweights’ desperate rush to downplay those concerns at the G20 meeting in Seoul.

A stronger dollar makes it more expensive for investors holding other currencies to buy dollar-denominated commodities like crude oil.

In recent weeks, the energy market has been buoyed by a weaker dollar and the prospect of a stronger-than-expected global economic recovery.

Traders also absorbed the latest demand forecasts from the International Energy Agency (IEA) on Friday.

The IEA raised its 2010 global oil demand growth forecast to an average of 87.3 million barrels per day, partly due to a stronger-than-expected rebound in the third quarter, but pointed to a modest slowdown in 2011.

The Paris-based IEA is the energy monitoring and strategy arm for the world’s leading industrialised nations that comprise the Organisation for Economic Cooperation and Development (OECD).

“Forecast global oil demand growth for 2010 is revised up by 0.2 million barrels per day to 2.3 mbpd on higher-than-expected (third quarter) data in the OECD and slightly stronger readings in the non-OECD,” the IEA said Friday in a report.

“Assuming no recurrence of the weather-induced third-quarter surge, 2011 growth is set to slow to 1.2 mbpd … with demand averaging 88.5 mbpd versus 87.3 mbpd in 2010

 

Nelson Chukwudi