CRUDE oil futures fell yesterday as the dollar strengthened, giving investors an opportunity to collect profits from the previous session's record rise.
A day after an unexpected supply drop pushed the May-delivery light, sweet crude contract to a new trading record of US$112.21 on the New York Mercantile Exchange, the contract dropped 76 cents to settle at US$110.11 a barrel. Also pressuring prices was data from tanker tracking firm Oil Movements showing that OPEC oil shipments rose last week. That suggests more supplies might soon come to market.
Many analysts attribute crude's run above US$100 per barrel in recent months largely to the steadily falling dollar. But the effect reverses when the dollar rises, making commodities such as oil a less effective hedge against inflation. Also, oil is more expensive to investors overseas when the dollar strengthens.
However, analysts are reluctant to define a single day's decline as the end of crude's bull run. Many believe investors will continue plowing money into crude futures on expectations that Federal Reserve rate cuts _ perhaps two more this year _ could weaken the dollar further.
"We could now see a lot of 'system money' join the upside breakout, propelling prices even higher," said Edward Meir, an analyst at MF Global UK Ltd., in a research note, referring to hedge fund investors.
The contract's rally a day earlier was spurred by a US government report showing that crude inventories had fallen last week, defying analyst expectations of a build.
Crude's gains have undercut hopes that record US retail gasoline prices will abate.
Retail gasoline prices extended their record run yesterday, with experts predicting further price hikes as peak summer driving season approaches. At the pump, the national average price of a gallon of gas rose 1.4 cents overnight to a record US$3.357 a gallon, according to AAA and the Oil Price Information Service. Prices have set a string of records in recent weeks, and are 56 cents higher than a year ago.
May gasoline futures rose 1.79 cents to settle at US$2.7921 a gallon.
The Energy Department expects gas prices to average as much as US$3.60 a gallon this summer, but believes the national average price could spike as high as US$4 a gallon at times.
Retail diesel, the fuel of trucks and other heavy vehicles, rose overnight to a new national record of US$4.045 a gallon.
In other Nymex trading Thursday, May heating oil futures fell 4.05 cents to settle at US$3.194 a gallon. Earlier, heating oil futures rose to a trading record of US$3.3204 a gallon due to falling supplies and strong demand overseas.
Nymex natural gas for May delivery rose 4.2 cents to settle at US$10.098 per 1,000 cubic feet. The Energy Department said natural gas supplies fell by 14 billion cubic feet last week, in line with analyst expectations.
In London, May Brent crude fell 27 cents to settle at US$108.20 a barrel on the ICE Futures Exchange.