Oil Falls as Dollar Climbs Against Euro, U.S. Fuel Demand Drops

By Mark Shenk

Oct. 2 (Bloomberg) -- Crude oil fell for a second day as the dollar reached a one-year high against the euro and U.S. fuel demand dropped to the lowest since the last recession.

Oil has tumbled 9.9 percent so far this week as the euro dropped against the U.S. currency amid signs that Europe's economy is slowing. Fuel use over the past four weeks averaged 19 million barrels a day, the lowest since October 2001, an Energy Department report showed yesterday.

``The first thing I look at when I come into the office now is the dollar,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``I think the dollar's strength pretty much explains the movement of the oil market today. Also, yesterday's report showed very anemic product demand.''

Crude oil for November delivery fell $2.18, or 2.2 percent, to $96.35 a barrel at 9:19 a.m. on the New York Mercantile Exchange. Prices, which are up 21 percent from a year ago, have dropped 35 percent from the record $147.27 a barrel reached on July 11.

``We are going to soon test $93.36, the low the other day,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``If prices get below $93.36 we will soon test $90 and then $86.11, which was the low on Jan. 22.''

The euro declined to $1.3768, from $1.4009 yesterday in New York. It touched $1.3748, the weakest level since Sept. 7, 2007.

The U.S. Senate passed a $700 billion financial-market rescue package loaded with inducements for the House of Representatives to approve the measure following its rejection of an earlier version.

Prices Will Tumble

``A perception is developing that even if the rescue plan is passed by the House, it won't address the underlying problems that threaten the economy,'' Barakat said. ``If the economy continues to weaken oil prices will tumble.''

Prices may fall as low as $50 a barrel next year in the event of a ``global recession,'' Merrill Lynch & Co. said in a report today. Such an occurrence is still ``unlikely,'' Merrill said, while reducing its 2009 oil forecast by 16 percent to $90 a barrel.

Brent crude oil for November settlement declined $2.42, or 2.5 percent, to $92.91 a barrel on London's ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.