Crude Oil Falls as Stronger Dollar Dims Commodities' Appeal

By Alexander Kwiatkowski

Sept. 11 (Bloomberg) -- Crude oil fell for a third day as the dollar gained against the euro, reducing the appeal of commodities as a hedge.

Oil dropped after the dollar rose to a one-year high against the euro on speculation that growth in Europe will slow more than in the U.S. Investors looking to hedge against the dollar's decline helped lead crude oil and other commodities to records earlier this year. Hurricane Ike was set to miss platforms off the Louisiana coast as it passes through the U.S. Gulf.

``The sentiment in the market is very negative at the moment since demand for oil and commodities has declined sharply,'' said Thina Saltvedt, an analyst at Nordea Bank AB in Oslo. ``Quite a lot of investors are pulling out of commodities.''

Crude oil for October fell as much as $1.15, or 1.1 percent, to $101.43 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $101.75 at 1:02 p.m. London time.

Crude has fallen about 30 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduce demand for fuels.

The International Energy Agency lowered its 2008 oil demand forecasts yesterday, citing an expectation of weakening fuel consumption in the U.S., the world's biggest gasoline consumer.

The dollar climbed to $1.3893 per euro, the strongest since Sept. 18, 2007, before trading at $1.3936 as of 1:03 p.m. in London from $1.3998 late yesterday in New York.

Hurricane's Eye

Hurricane Ike's eye was 620 miles (995 kilometers) east of Brownsville, Texas, and moving west-northwest at 9 miles per hour, the National Hurricane Center said in an advisory at 4 a.m. Houston time today.

Ike strengthened to a Category 2 hurricane with sustained winds of 100 mph, up from 80 mph yesterday. The storm is forecast to sweep through the center of the Gulf, missing the offshore Louisiana oil and natural gas fields.

Some rigs, refineries and platforms shut down by Hurricane Gustav last week are staying closed as Ike tracks across the region. Gulf operators have evacuated personnel from 63 percent of the production platforms, the Minerals Management Service said on its Web site yesterday.

The agency estimates that as much as 96 percent of Gulf of Mexico oil production, and 73.1 percent of natural gas output, is shut. That is about 1.25 million barrels a day of oil and 5.4 billion cubic feet a day of gas.

`Skirting Away'

``Ike appears to be skirting away from the oil and gas production fields and should make land around the Corpus Christi area,'' said Robert Laughlin, senior broker at MF Global Ltd. in London. ``The oil market may have escaped again.''

Brent crude oil for October settlement fell as much as $1.12, or 1.1 percent, to $97.85 a barrel on London's ICE Futures Europe exchange. It was at $98.25 at 1:03 p.m. London time.

Oil's decline led the Organization of Petroleum Exporting Countries to say this week it will try to limit production.

OPEC members, who supply about 40 percent of the world's oil, agreed at a meeting in Vienna to a total production limit for 11 members of 28.8 million barrels a day, unchanged from previous targets. OPEC Secretary-General Abdalla El-Badri said this means it will trim ``oversupply'' by about 500,000 barrels a day.

The decision is a signal that OPEC is ``entering price defense mode,'' Barclays Capital analysts led by Paul Horsnell said in a research note.

``Saudi Arabia would be perfectly happy with prices in the $90 to $100 range,'' the Barclays analysts said. ``It appears that other OPEC members wished to give a stronger signal.''

Barclays slashed its fourth-quarter oil price forecast by 21 percent on weakening demand. The bank expects West Texas Intermediate to average $97.50 a barrel in the fourth quarter, $26.40 less than a forecast of $123.90 in its previous weekly report. The bank's Brent crude forecast was reduced to $95.90, from $122.20, for the fourth quarter.

Natural gas for October delivery rose 0.8 percent to $7.454 per million British thermal units on Nymex, while gasoline futures rose 1.5 percent to $2.7005 a gallon.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net