Crude Oil Falls as Weakening Euro Declines Against U.S. Dollar

By Mark Shenk and Samantha Zee

Sept. 5 (Bloomberg) -- Crude oil fell for a sixth straight session to its lowest in more than five months as the euro accelerated its decline against the dollar, curbing the appeal of commodities as an inflation hedge.

Oil has tumbled more than 6 percent so far this week as the euro dropped to the weakest this year against the U.S. currency amid signs that Europe's economy is slowing. Investors looking to hedge against the dollar's decline earlier this year helped lead crude oil, gold, corn and gasoline to records.

``We are continuing to see investors exit the commodity trade as a result of the dollar's strength and a flight to quality in treasuries,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``Also, demand is terrible because of the weak economy.''

Crude oil for October delivery fell 45 cents to $107.44 a barrel at 8:46 a.m. Sydney time on the New York Mercantile Exchange. Yesterday, oil fell $1.46, or 1.3 percent, to settle at $107.89 a barrel in New York.

Prices, which are up 44 percent from a year ago, are down 27 percent from the record $147.27 reached July 11.

The euro fell to $1.4334 against the U.S. dollar from $1.4498 yesterday. It touched $1.432, the lowest since Dec. 21. The European currency has dropped for six straight days.

Luxembourg Finance Minister Jean-Claude Juncker, who chairs a group of counterparts from the euro-area, said the economic situation in Europe is ``not good'' and the European Union will cut its growth forecasts this month.

The European Commission's 2008 gross domestic product forecast will be cut to as low as 1 percent when it publishes new predictions next week, Juncker told reporters in Luxembourg yesterday. It previously forecast growth of 1.7 percent.

Oil Stockpiles

Crude-oil stockpiles fell 1.9 million barrels to 303.9 million barrels in the week ended Aug. 29, the department said in its weekly report yesterday. Analysts surveyed by Bloomberg News were split over whether the report would show an increase or drop. Platforms in the Gulf and refineries in coastal areas shut as Hurricane Gustav approached Louisiana.

``It's rather telling that the market can't go higher on this bullish report,'' said Brad Samples, a commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``Traders are taking the numbers with an appropriate grain of salt. Tropical storms impact the arrivals of tankers and refinery activity.''

Prices fell as low as $105.46 on Sept. 2, the lowest since April, after Hurricane Gustav, the most powerful storm since Katrina and Rita in 2005, caused little damage to Gulf of Mexico production. The Gulf is responsible for more than one-fifth of U.S. oil production.

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.

OPEC Quotas

The OPEC members with quotas produced about 592,000 barrels a day more than their official limit of 29.673 million last month, according to Bloomberg estimates. Iraq has no quota. All the countries except Saudi Arabia are pumping at close to capacity to meet rising demand and compensate for declining supplies from Nigeria, Iran and Venezuela.

BP Plc and its billionaire partners in TNK-BP, Russia's third-largest oil company, agreed to oust the chief executive officer and expand the board to resolve an eight-month dispute that threatened the British company's future in the country.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net.