Oil near $108 as traders eye dollar, economy
Oil prices were stuck around $108 a barrel Friday as a traders mulled whether a weaker dollar and signs of strong U.S. gasoline demand justify extending a two-month rally.
By early afternoon in Europe, benchmark crude for May delivery was down 6 cents at $108.05 a barrel in electronic trading on the New York Mercantile Exchange. The contract added $1.00 to settle at $108.11 on Thursday.
In London, Brent crude for June delivery was up 1 cents to $122.01 a barrel on the ICE Futures exchange.
Oil prices sold off the first two days of this week, from $113.46 on Monday, the highest since September 2008. However, a weaker dollar and signs U.S. gasoline consumption remains robust helped stanch those losses. Crude has gained 28 percent since Feb. 15.
"Oil bulls, with tremendous help from a feeble U.S. dollar, have managed to regroup and claw back into the fray," energy consultant The Schork Group said.
For much of the last decade, there has been a strong correlation between the dollar and oil prices. If the U.S. currency falls, it makes dollar-based commodities such as crude cheaper for investors with other currencies.
The correlation between the oil and the dollar weakened between about October and March, but has returned this month. On Thursday, the dollar fell to a 16-month low against a basket of six major currencies.
"This relationship has re-coupled, with a vengeance," The Schork Report said. "Thus, here we go again, as goes the dollar, goes oil, in the opposite direction."
The euro fell slightly to $1.4451 on Friday from $1.4487 late Thursday while the dollar slid to 83.26 yen from 83.49 yen.
The situation in Libya, which used to export 1.6 million barrels of crude a day before the conflict began, also helped set a floor for oil prices.
"It seems that key elements are the U.S. dollar direction as well as the ongoing geopolitical tensions in Libya and the Middle East that currently dominate the oil market, keeping crude oil prices at these high recent levels," said a report from Sucden Financial in London.
Expectations that China could raise interest rates to counter rising inflation and persistently strong economic growth was seen weighing on oil prices.
"The need for further monetary policy measures in China after the strong economic data ... is dampening the rise in prices," said analysts at Commerzbank in Frankfurt.
Investors will also be closely watching the latest data on U.S. consumer prices and industrial production scheduled to be released later Friday.
"It looks to us like oil prices have had their correction," Cameron Hanover said in a report. "We continue to believe that prices will advance again to post new highs before May 30."
In other Nymex trading in May contracts, heating oil rose 1 cent to $3.20 a gallon and gasoline was steady at $3.24 a gallon. Natural gas futures were down 1.7 cents at $4.20 per 1,000 cubic feet.