Oil Drops on Stronger U.S. Dollar

Crude oil fell to a 14-week low as the U.S. dollar strengthened against the euro and on signs gasoline demand may extend declin

Oil has fallen 18 percent since its July record as the rising dollar curbed the appeal of commodities as a hedge against inflation. Gasoline use has dropped for 13 straight weeks, MasterCard Inc reported July 22.

Crude oil for September delivery fell $3.98, or 3.2 percent, to $120.75 a barrel at 10:48 a.m. on the New York Mercantile Exchange. Oil, which surged a record $147.27 a barrel on July 11, fell to $120.42 today, the lowest since May 6.

Oil's decline ``seems to be a reversal of money flow,'' said Kyle Cooper, director of research at IAF Advisors in Houston. ``It seems to be more technical and money-flow related.''

The dollar strengthened 0.8 percent to $1.5609 against the euro today, from $1.5741 yesterday, limiting the appeal of commodities as an inflation hedge. The U.S. currency appreciated 0.7 percent to $108.17 yen, from 107.46 yesterday.

The Energy Department report tomorrow will probably show that gasoline inventories rose 250,000 barrels last week, according to Bloomberg survey.

Gasoline futures for August delivery fell 7.82 cents, or 2.6 percent, to $2.9918 a gallon in New York. The price touched $2.9814, the lowest since May 5.

Regular gasoline at the pump, averaged nationwide, fell 1.7 cents to $3.941 a gallon, AAA, the nation's biggest motoring group, said today on its Web site.

OPEC President Chakib Khelil said crude-oil prices are ``abnormal,'' and the producer group shouldn't cut output because it needs to ensure adequate supply.

The Organization of Petroleum Exporting Countries produces about 40 percent of world oil supplies.

TradingEconomics.com, Bloomberg
7/29/2008 8:34:00 AM