Oil Set for Third Weekly Decline as Dollar Gains, Demand Slows

By Christian Schmollinger

Sept. 19 (Bloomberg) -- Crude oil is set for a third weekly decline as the dollar gained against the euro, limiting the appeal of commodities to investors amid forecasts of slowing global demand.

Oil has dropped 3.5 percent this week on concern the global credit crunch that has hammered Wall Street investment banks will cause a recession and crimp fuel consumption. The dollar climbed as much as 1 percent against the euro today as the U.S. government plans to work out a plan to alleviate the recent financial market turmoil.

``People will sell crude as the dollar rises but whether this holds over the long term we'll have to see,'' said Jonathan Kornafel, a director for Asia at Hudson Capital Energy in Singapore. ``There is a lot of volatility with money flowing from one place to another.''

Oil for October delivery fell as much as 49 cents, or 0.5 percent, to $97.39 a barrel on the New York Mercantile Exchange. It was at $97.68 at 9:46 a.m. Singapore time. It earlier rose as much as 82 cents, or 0.8 percent, to $98.70 a barrel. Yesterday, the contract gained 72 cents to settle at $97.88 a barrel.

Oil futures are up 1.8 percent this year and have lost 34 percent since reaching a record $147.27 a barrel on July 11.

Brent crude oil for November settlement was at $95 a barrel, down 19 cents, on London's ICE Futures Europe exchange at 9:33 a.m. Singapore time. It rose 35 cents, or 0.4 percent, to $95.19 a barrel yesterday.

U.S. stocks rallied the most in six years yesterday on prospects the government will formulate a ``permanent'' plan to shore up financial markets, while regulators and pension funds took steps to curb bets against banks and brokerages.

The Dow Jones Industrial Average jumped 617 points from its low of the day and the Standard & Poor's 500 Index climbed 4.3 percent.

Oil tumbled more than $10 in the first two days of the week as Lehman Brothers Holdings Inc. filed for bankruptcy, and Merrill Lynch & Co. was sold to Bank of America Corp.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.