Oil drops as dollar gains trigger commodities sell-off

 

Oil fell toward $100 (Dh368) on Tuesday, extending losses from the previous session as a strengthening US dollar triggered a wide sell-off across commodity markets.

 

US crude dropped $1.55 to $100.03 a barrel by 1435 GMT after briefly dipping below $100, following Monday's $4.04 decline on end-of-quarter selling by funds locking in their profits in commodities to offset losses in other asset classes.

 

London Brent fell 99 cents to $99.31 a barrel.

 

Gas oil futures were especially weak, dropping nearly 5 per cent to $921 a tonne as the heating oil season draws to a close.

 

Average oil futures prices surged to record highs during the first quarter of 2008, with the average for US crude up 68 per cent on a year-earlier and 8 per cent higher than the preceding quarter.

 

Funds sold out of oil positions in droves on Monday to take profits at the end of the first quarter, as a week of heavy fighting in Iraq's oil port city of Basra ended and officials forecast a recovery in crude exports from the hub within a day.

 

"We look for the US dollar to generally guide pricing today now that military activity in Southern Iraq has subsided and most financial markets are showing some stability," said Jim Ritterbusch, president of Ritterbusch & Associates in Illinois.

 

"But with the start of a new quarter, funds will likely be viewing further price pullbacks as buying opportunities, especially after freeing up a significant amount of cash via recent commodity liquidation," he added.

 

Gold, silver and platinum prices tumbled on Tuesday on broad gains in the dollar on better-than-expected manufacturing data out of the United States and after a report showed US chain store sales rose last week.

 

The dollar was also helped by Swiss bank UBS and Germany's Deutsche Bank announcement of $23 billion in additional writedowns, which showed that credit problems are not limited to the United States.

 

Analysts said the market was awaiting data on weekly US oil inventories, due out on Wednesday and expected to shed more light on the prospects of oil demand in the world's top fuel consumer, which, some say, is in the grip of a recession.

 

"People are looking at US gasoline demand and how stocks can be accumulated before the summer driving season. It depends on the US economy," said Tetsu Emori, a Tokyo-based fund manager at Astmax Co Ltd.

 

Gasoline inventories in the United States are forecast to have fallen by 2.3 million barrels last week, the third straight week of decline, a Reuters poll found.

 

Distillate stocks, which include heating oil and diesel, were likely to drop 1.5 million barrels, but crude oil stocks are forecast to rise 2.3 million barrels due to higher imports. (Reuters)

 
 
 
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