Oil prices pull back as dollar gains strength

[June 12, 2008]  VIENNA, Austria (AP) -- Oil prices eased Thursday as the dollar gained strength, though traders awaited the next price surge amid persistent global supply concerns.

Sweet crude for July delivery was down $1.75 by noon in Europe in electronic trading on the New York Mercantile Exchange to trade at $134.45.

"Even though there is a little bit of pull back this morning, the underlying sentiment is probably bullish in the near term due to concerns in the supply side," said David Moore, commodity strategist with the Commonwealth Bank of Australia in Sydney.

Oil prices rose sharply Wednesday after the U.S. Energy Department said oil inventories fell 4.6 million barrels last week. Analysts surveyed by energy research firm Platts expected a much smaller decline of about 1.4 million barrels. The contract jumped $5.07 to settle at $136.38 a barrel Wednesday after reaching as high as $138.30.

"Net stocks of crude oil fell, hard, for a fourth straight week," said analyst and trader Stephen Schork, in his Schork report. "That is the largest one-month draw since October 1990, when imports plunged in the build up to the first Gulf War."

Moore said that gains in the dollar Thursday against the euro and yen contributed to the dip in oil prices.

Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker greenback makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar's protracted decline is the primary reason oil prices have doubled over the past year.

The 15-nation euro fell in morning European trading to $1.5430, from $1.5571 in New York trading late Wednesday. The greenback also was somewhat higher against the Japanese yen Thursday morning, buying 107.58 yen, from 106.93 Wednesday.

Consumers in Malaysia and India are grappling with higher gasoline and other fuel prices after governments in both countries cut subsidies a week ago, declaring that soaring global crude prices were straining government finances.

In Malaysia, gasoline pump prices were hiked by a stunning 41 percent to 2.70 ringgit a liter, or about $3.30 a gallon -- still lower than many other Asian nations. Prime Minister Abdullah Ahmad Badawi, faced with public protests, promised not to raise prices again this year.

Moore said the price hikes are likely to affect global demand but it's unclear to what extent.

The market will also be watching out for a June 22 meeting of oil producing countries and consumers, he said. The meeting is called by world's largest oil producer Saudi Arabia, which has said the current oil price was unjustified.

Other factors supporting oil prices were a higher-than-expected rise in Chinese fuel imports in the first 5 months this year, and Royal Dutch Shell PLC's decision to extend force majeure on some Nigerian oil shipments.

The legal declaration that means the company can't meet contractual obligations to supply some customers. The company first made the declaration following a militant attack in April.

In other Nymex trading Thursday, July gasoline futures were down by over a penny at $3.4500 a gallon while heating oil futures slipped by less than a cent at $3.93 a gallon. July natural gas futures were down nearly 5 cents at $12.606 per 1,000 cubic feet.

July Brent crude fell 43 cents to $134.59 a barrel on the ICE Futures exchange.

[Associated Press; By GEORGE JAHN]

Associated Press Writer Eileen Ng contributed to this report from Kuala Lumpur, Malaysia.

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