Crude Oil Extends Drop as Stronger Dollar Curbs Hedging Appeal

By Grant Smith
Enlarge Image/Details

Sept. 5 (Bloomberg) -- Crude oil fell in New York, set for its biggest weekly decline in a month, as the dollar gained, curbing demand for commodities as a currency hedge.

Oil has fallen more than 7 percent this week as the euro dropped to the weakest this year against the dollar. U.S. daily average implied fuel demand so far this year is down 4.1 percent at 19.9 million barrels from a year ago, U.S. Energy Department data showed yesterday.

``The rally in the U.S. dollar is weighing on prices, and adding to that is the weak macro economic data from the U.S. and Europe,'' said Toby Hassall, an analyst at Commodity Warrants Australia. ``The outlook looks bearish and funds are selling off on fundamental weakness.''

Crude oil for October delivery fell as much as $1.06, or 1 percent, to $106.83 a barrel, and traded at $106.90 at 8:59 a.m. London time on the New York Mercantile Exchange.

Prices are down 27 percent from the record $147.27 reached July 11. The dollar's decline earlier this year had prompted investors to buy commodities, helping to push crude oil, gold, corn and gasoline to records.

The euro was at $1.4286 against the U.S. dollar at 8:50 a.m. London time from $1.4498 yesterday. It touched $1.432, the lowest since Dec. 21. The European currency has dropped for six straight days.

The Organization of Petroleum Exporting Countries, the supplier of 40 percent of the world's oil, will probably keep producing at a record pace. The 13-nation group will reject calls from Venezuela and Iran to trim supplies at its Sept. 9 meeting in Vienna, according to 29 of the 32 energy analysts surveyed by Bloomberg News.

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