Oil falls as dollar strengthens against currencies

NEW YORK — Oil dropped more than 2 percent Wednesday as the dollar strengthened and investors shrugged off an unexpectedly large decline in crude supplies.

Benchmark West Texas Intermediate crude for July delivery fell $2.20, or 2.2 percent to $97.17 per barrel in midday trading on the New York Mercantile Exchange. It traded as high as $100.04 earlier in the day.

In London, Brent crude fell $3.55, or 3 percent, to $115.90 per barrel on the ICE Futures exchange.

The price of oil fell as the dollar strengthened in the wake of the widening European financial crisis. Crude, which is priced in U.S. currency, tends to fall as the dollar rises and makes oil more expensive for investors holding foreign currency.

The U.S. Dollar Index, which measures the greenback versus other major currencies, rose nearly 1 percent after Moody's ratings service said it may downgrade three big French banks that face losses on Greek bonds and banking operations as the country struggles with its debt crisis. Thousands protested government austerity measures in Athens on Wednesday.

Wall Street gave back all of the gains it made Tuesday — and then some — as investors worried about the impact of the Greece crisis on Europe and the global economy. The Dow Jones Industrial Average tumbled 180 points by midday. The Standard and Poor's 500 and the Nasdaq dropped as well.

Oil prices fell despite the Energy Information Administration's report that crude supplies in the U.S. shrank more than expected last week while wholesale gasoline demand increased.

The EIA's weekly petroleum report showed that crude supplies fell by 3.4 million barrels last week. Analysts expected a decline of 1.9 million barrels. Most of the drop came from inventories in the Midwest, where a major pipeline was shut down temporarily due to leaks.

The EIA said gasoline supplies increased last week, though much less than analysts expected. Gasoline demand increased slightly last week as well, but independent analyst Jim Ritterbusch said the U.S. continues to sit on a comfortable supply and relatively high pump prices should limit drivers' trips to the gas station.

"I just don't see demand improving for gasoline this summer on a sustained basis," Ritterbusch said.

In other Nymex trading for July contracts, heating oil fell 7 cents to $3.0531 per gallon and gasoline futures lost 7 cents at $2.9976 per gallon. Natural gas fell 4 cents to $4.535 per 1,000 cubic feet.