Oil slips below $79 amid stronger US dollar

[February 04, 2010]  TOKYO (AP) -- Oil prices dropped below $79 a barrel Friday amid a strengthening U.S. dollar and weak crude demand in developed countries.

By early afternoon in Europe, benchmark crude for February delivery was down 77 cents to $78.62 a barrel in electronic trading on the New York Mercantile Exchange. On Thursday, the contract fell 26 cents to settle at $79.39.

The euro was down to $1.4371 Friday from $1.4500 on Thursday, while the British pound dipped to $1.6273 from $1.6332. Investors often buy commodities such as oil as a hedge against inflation when the dollar weakens and sell when it strengthens.

Crude prices also fell on concerns demand from the U.S. and Europe remains weak.

Retail sales in the United States fell 0.3 percent in December, while economists had been expected an increase.

"The U.S. retail sales data ... was not as good as expected and put a cap on the global markets," said Olivier Jakob of Petromatrix in Switzerland.

Some analysts expect growth in demand from developing countries such as China will help make up for sluggish economic recoveries in rich nations.

Francisco Blanch, head of global commodities research for Bank of America Merrill Lynch, said 75 percent of the 2.3 percent growth in global crude demand this year will likely come from developing economies.

"I'm not saying demand from OECD countries is going back to the previous highs, but we've fallen very sharply and now we're stabilizing and coming up a little bit," Blanch told reporters in Singapore.

He expects crude to average $78 a barrel in the first half, $92 in the second.

A monthly report from the Paris-based International Energy Agency on Friday held steady its forecast for world oil demand this year, predicting a slight rebound in consumption led largely by developing economies in Asia.

"Oil demand recovery in the OECD is likely to remain sluggish, despite a bout of recent cold weather," the IEA said, predicting average global demand of 86.3 million barrels a day this year, or 1.4 million barrels a day more than in 2009.

In other Nymex trading in February contracts, heating oil fell 2.22 cents to $2.0607 a gallon and gasoline slid 1.28 cents to $2.0610 a gallon. Natural gas futures lost 5.6 cents to $5.532 per 1,000 cubic feet.

In London, Brent crude for February delivery fell 91 cents to $77.66 a barrel on the ICE Futures exchange.

[Associated Press; By PABLO GORONDI]

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

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