Business | General
US crude slips as dollar strengthens
Oil dropped below $116 a barrel yesterday as the dollar firmed and investors booked profits after crude rallied to a record high earlier this week.
- Reuters
- Published: 00:45 April 25, 2008
London: Oil dropped below $116 a barrel yesterday as the dollar firmed and investors booked profits after crude rallied to a record high earlier this week.
US crude tumbled by more than $2 to as low as $115.55 a barrel at one point. It was trading $1.35 down at $116.95 by 1510 GMT, dropping for the second straight session after reaching an all-time high near $120 this week.
London Brent fell $1.03 to $115.43 a barrel.
Oil and other dollar-denominated commodities came under pressure after a better-than-expected reading on US weekly jobless claims boosted the US dollar versus the yen.
"The most important factor to watch on a short-term basis is the dollar," said MF Global Energy in its daily research note.
The dollar's gains come as investors look closely at whether or not the Federal Reserve might be ready to pause in its aggressive run of interest rate cuts after an expected quarter-percentage-point trim next week to two per cent.
"If earnings releases remain constructive and macroeconomic data fails to disappoint, this will provide the Fed with room to assess the impact of its aggressive easing so far," currency strategists at investment bank UBS said.
The US central bank has slashed three percentage points from borrowing costs since September in an effort to stave off recession.
Some technical experts believe that oil, which has risen some 20 per cent this year, was in need of a correction after climbing to a record high of $119.90 on Tuesday.
But the energy complex found support from a planned workers strike this weekend at a major Scottish refinery that could force the closure of the key Forties North Sea pipeline.
"Crude oil remains overbought and will need some confirmation of disruptions to the Forties stream especially if the dollar maintains its strength," said Olivier Jakob of Petromatrix.
Talks to resolve the dispute at the 200,000 barrel-a-day Grangemouth refinery, which collapsed late on Wednesday, are unlikely to resume and the two-day strike over pensions is set to go ahead on Sunday, trade union officials said.
"The full shutdown of the refinery could significantly impact fuel supply availability, due to times involved in safely resuming operations after the strike as well as its potential impact on the operation of the Forties pipeline system," Barclays Capital said in its research note.
London's gas oil futures, European benchmark for distillate products such heating fuel and diesel, struck their all-time peak of $1,080.75 a tonne.
"The ICE London gas oil contract is a key leading indicator. It is still showing strength, much later than normal," said Jan Stuart, economist with UBS.
Finnish refiner Neste Oil said its diesel production line would be closed until the end of May.
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