Oil Steady Near 7-Week Low as Dollar Rises, Prices Curb Demand

By Grant Smith and Christian Schmollinger

July 24 (Bloomberg) -- Crude oil traded near a seven-week low as a stronger U.S. dollar diminished the appeal of commodities as a currency hedge and data showed faltering demand in the U.S. and Japan.

Futures have fallen 16 percent from a record $147.27 on July 11 as expectations for higher U.S. interest rates buoy the dollar, which traded at a two-week high against the euro today. U.S. fuel demand fell to its lowest since January 2007, Energy Department data showed yesterday, while Japanese oil imports dropped for the first time in nine months.

``There are no signs of strength in the market, which has come down hand-in-hand with the development of the euro- dollar,'' said Gerrit Zambo. ``People are cautious to go back into the market after the big drop in prices.''

Crude oil for September delivery traded at $124.52 a barrel, 8 cents higher on the New York Mercantile Exchange at 10:14 a.m. in London. It earlier fell as much as 82 cents, or 0.7 percent, to $123.62 a barrel.

Yesterday, oil dropped $3.98, or 3.1 percent, to settle at $124.44 a barrel, the lowest close since June 4.

``Oil prices are at a point that will bring about demand- side adjustments that will ultimately cause prices to be at a lower level,'' said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney.

U.S. fuel demand averaged 19.9 million barrels a day last week, the lowest since January 2007, the Energy Department said yesterday. Japan imported 0.7 percent less oil in June than a year ago, the first decline in nine months, the Ministry of Finance said today.

Dollar High

The dollar reached 107.99 against the yen, the highest since June 26, and a two-week high of $1.5638 per euro as U.S. lawmakers approved a rescue package for U.S. mortgage guarantors Fannie Mae and Freddie Mac.

Brent crude oil for September settlement was at $125.40 a barrel, up 11 cents, on London's ICE Futures Europe exchange at 10:01 a.m. London time. It dropped $4.26, or 3.3 percent, to close at $125.29 a barrel yesterday, the lowest settlement since June 4.

Demand has declined for three straight weeks, the Energy Department report showed. U.S. fuel consumption averaged 20.3 million barrels a day in the past four weeks, down 2.1 percent from a year earlier, the department said.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net.