Oil Gives Up Gains as Stronger U.S. Dollar Erodes Hedge Appeal

By Grant Smith

Oct. 21 (Bloomberg) -- Crude oil fell, giving up earlier gains, as the U.S. dollar rose to its highest in more than a year against the euro.

Crude climbed earlier on expectations that the Organization of Petroleum Exporting Countries, supplier of 40 percent of the world's oil, will reduce output at an extraordinary meeting in Vienna this week. Investors often choose to sell crude and other dollar-priced commodities when the U.S. currency gains, undermining their use as an inflation hedge.

``Over the long-term, the oil-dollar correlation is still rather high. It's about 60 percent,'' said Jochen Hitzfeld, an analyst at UniCredit Markets & Investment Banking in Munich. ``We think OPEC will cut production by about 1 million barrels, stabilizing prices.''

Crude oil for November delivery fell as much as 90 cents, or 1.2 percent, to $73.35 a barrel on the New York Mercantile Exchange, and was at $73.50 as of 9:34 a.m. in London. It earlier advanced $1.44 or 1.9 percent to $75.69.

The dollar climbed to $1.3273 against the euro from $1.3344 late yesterday in New York. It earlier reached $1.3258, the strongest since March 2007.

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