Oil falls ahead of OPEC meeting

[September 05, 2008]  NEW YORK (AP) -- Oil prices dropped below $107 a barrel Friday as the dollar continued to gain on the euro and investors waited to see if OPEC moves to restrict output next week amid a two-month plunge in prices.

By midday in Europe, light, sweet crude for October delivery was down $1.39 to $106.50 a barrel in electronic trading on the New York Mercantile Exchange. The contract overnight fell $1.46 to settle at $107.89.

In London, October Brent crude lost $1.22 to $105.08 a barrel on the ICE Futures exchange.

"We're definitely in a short-term bearish trend," said Gavin Wendt, head of mining and resources at research firm Fat Prophets in Sydney. "With prices falling so rapidly, I think OPEC would like to protect that $100 price barrier."

The Organization of the Petroleum Exporting Countries is scheduled to meet early next week in Vienna and has indicated it may take action to defend the $100-a-barrel level.

Crude has fallen over $40, or 27 percent, since surging to a record $147.27 a barrel on July 11.

A stronger dollar has also been weighing on oil prices, particularly against the euro. A rising greenback spurs investors to shift funds out of commodities like oil and precious metals, which are traditionally bought as hedges against inflation and dollar weakness.

"It's a big factor," Wendt said. "You've got the dollar on one side and commodities on the other. At least temporarily, the U.S. dollar is recovering."

The euro was slightly lower Friday at $1.4227, down from nearly $1.60 in mid-July. The dollar has weakened lately against the yen, though, falling below 107 yen.

"In the current trend of the Dollar Index, it is becoming harder and harder to see (crude oil) rising back to previous record highs," said Olivier Jakob of Petromatrix in Switzerland.

A weekly U.S. oil inventory report released Thursday was mixed. The Energy Department's EIA said U.S. gasoline stocks fell by 1 million barrels to 194.4 million barrels for the week ending Aug. 29, less than the 1.8 million-barrel drop analysts surveyed by energy research firm had Platts expected.

The EIA also said U.S. crude stocks tumbled unexpectedly last week. Crude supplies dropped by 1.9 million barrels to 303.9 million barrels; analysts had expected supplies to increase by 500,000 barrels.

Meanwhile, inventories of distillate fuel, which include diesel and heating oil, fell by 400,000 barrels to 131.7 million barrels. Analysts expected stocks to rise by 1.1 million barrels.

In other Nymex trading, heating oil futures fell 3.83 cents to $2.9854 a gallon, while gasoline prices dropped 2.89 cents to $2.7115 a gallon. Natural gas for October delivery lost 5.5 cents to $7.267 per 1,000 cubic feet.

[Associated Press; By PABLO GORONDI]

Associated Press Writer Alex Kennedy in Singapore contributed to this report.

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