OIL prices eased yesterday, pressured by profit-taking, gains in the dollar and expectations that a looming government report would show another increase in US crude stockpiles.
US crude futures settled down 59 cents to US$108.50, the day after refinery trouble in Europe spurred a US$3 jump. London Brent crude shed 80 cents to US$106.34.
"Looks like dollar strength helping pressure crude. The crude market failed to take out earlier highs and is running into some profit-taking," said Tom Bentz of BNP Paribas Commodity Futures Inc.
The dollar rose against a basket of currencies on growing views the economic slump in the United States could spill over into other countries and prompt their central banks to cut
interest rates.
A weak dollar tends to raise prices for commodities denominated in the currency by boosting non-US spending power and by attracting investors seeking an inflation hedge. A stronger dollar can push commodities prices down.
Economic turmoil also has tempered crude's record rally in recent months by dimming prospects for global energy demand growth, analysts said.
The US Energy Information Administration said yesterday that US gasoline demand is likely to contract this summer for the first time since 1991 -- a reflection of high prices and
economic weakness in the world's biggest consumer.
Adding to oil's softness, analysts said they expected a report from the EIA due Wednesday to show a 2.2-million-barrel increase in nationwide crude stockpiles due to higher import
levels.
Oil prices got a big boost on Monday after a fire at a refinery in Finland delayed the restart of a key diesel-making unit, threatening to tighten already tight European diesel
inventories.
London's gas oil futures, closely related to diesel, hit a new peak of US$1,017 a tonne yesterday before easing slightly to US$1,007.
US RAISES PRICE FORECAST
The EIA said yesterday that despite softening demand, the world oil market would remain tight this year as production increases from both the Organization of the Petroleum Exporting
Countries (OPEC) and non-OPEC countries will likely fall short of projections.
For the first time, it raised its full-year forecast for US light crude to more than US$100 a barrel and said a slowing US economy would not be enough to check soaring oil demand.
OPEC has said inventories are ample and has so far rejected calls from consumers for more oil.
The group's President Chakib Khelil reiterated yesterday that high oil prices were not caused by a shortage of crude and he saw no need for OPEC to pump more.
"Nothing has changed to change at least my view of the situation, which is there is really no need for increasing the supply," he told reporters on the sidelines of a conference.
OPEC's second largest oil producer, Iran, has been locked in a long-standing row with the West over its nuclear program, which oil investors fear could lead to supply disruptions.