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Oil down more than $1 a barrel on stronger dollar

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[July 14, 2008]  ST. LOUIS (AP) -- Oil prices fell Monday as the dollar rose on expectations U.S. moves to shore up two ailing mortgage financiers will help avert a worsening of the credit crisis.

RestaurantBy midday in Europe, light, sweet crude for August delivery was down $1.26 at $143.82 a barrel in electronic trading on the New York Mercantile Exchange.

The contract rose to a trading record of $147.27 a barrel in New York on Friday before closing at $145.08, just down from Thursday's settlement record of $145.29.

In London, August Brent crude fell $1.64 to $142.85 a barrel on the ICE Futures exchange.

The U.S. Federal Reserve said Sunday it would lend if necessary to major U.S. government-backed mortgage giants Freddie Mac and Fannie Mae, which have seen their stock prices plummet amid subprime loan turmoil. The Treasury Department also said it would seek congressional approval to make a possible equity investment in the two companies.


"The Fed action on Fannie and Freddie is a short-term positive because it prevents a credit meltdown," said Victor Shum, an analyst with energy consulting firm Purvin & Gertz in Singapore. "But longer-term, it shows the extent of the problem facing the U.S. economy."

Investors have been buying dollar-denominated crude contracts as a hedge against inflation and a weakening dollar, pushing the price of oil to double in the past year. When the dollar strengthens, such currency-related buying tends to unwind.

On Monday, the dollar was stronger against the euro, which fell to $1.5858 from $1.5901 late Friday.

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"The stress in financial markets should be a dominant market-making influence this week," said Olivier Jakob at Petromatrix in Switzerland.

Elsewhere, fears that a strike by Brazilian oil workers will cut supplies helped to keep crude prices from falling further. About 2,500 workers in the Campos Basin, which produces more than 80 percent of Brazil's oil output, began a strike at midnight Sunday to demand that state-run oil company Petrobras give them an extra day off at the end of each two-week shift on the platforms.

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"Supply-side concerns in Brazil, Iran and Nigeria are putting a high floor on prices," Shum said. "We see limited downside risk and expect higher highs in the coming weeks."

Iranian officials vowed on Sunday that the Islamic Republic would fight back against any attacks on it and "cut off the hands" of the invaders. The comments came amid heightened speculation that Israel and the United States will attack Iranian targets to destroy what they say are Tehran's suspicious nuclear programs.

Nigeria's main militant group said last week it planned to resume attacks in the oil-rich Niger region because of a British pledge to help support the government in ending the conflict there.


Iran is OPEC's second-largest oil exporter, while Nigeria is Africa's largest oil producer.

In other Nymex trade, heating oil futures fell 5.01 cents to $4.0265 a gallon while gasoline prices fell 4.82 cents to $3.544 a gallon. Natural gas futures rose 7.1 cents to $11.975 per 1,000 cubic feet.

[Associated Press; By PABLO GORONDI]

Associated Press writer Alex Kennedy in Singapore contributed to this story.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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