Strong dollar pressures crude

Crude oil prices drop down below $130

Crude-oil futures fell on Tuesday, 27 May, 2008 after the dollar strengthened and also as traders took in profits. Last week, crude prices marked a new high almost everyday after traders speculated that crude supplies are not enough to meet the forthcoming hurricane season. Prices had increased almost everyday of the week.

Crude-oil futures for light sweet crude for July delivery today closed at $128.85/barrel (lower by $3.34/barrel or 2.5%) on the New York Mercantile Exchange.

Last week, crude prices closed higher by 5%. Price touched a high of $135.09 earlier during the week. For the year, crude is up by 29.5% till date. Prices have more than doubled on a yearly basis.

At the currency markets on Tuesday, the dollar extended gains against major rivals building on gains from weak German consumer confidence data earlier. The dollar index, which tracks the greenback against a basket of six major currencies, was up 0.3% to 72.213.

Dollar weakness typically benefits dollar-denominated commodities, such as gold and crude oil, because it makes them cheaper for holders of other currencies. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Among major economic news of the day, the Conference Board reported that U.S. consumer confidence extended its tumble in May to reach a 16-year-low, as inflation expectations reached a record on rising gas prices.

Natural gas prices turned lower late in Tuesday's trading session, after failing to reach the key $12 level. They had spent the bulk of the day moving higher. June natural gas fell 6 cents to close at $11.80 per million British thermal units. It hit a high of $11.98 earlier to mark the highest level the contract has ever reached on Nymex.

Against this backdrop, June reformulated gasoline fell by 2 cents to close at $3.38 a gallon, while June heating oil settled at $3.80 a gallon, down 7 cents.

Crude had ended FY 2007 substantially higher by $35 or 57%. It was crude’s biggest yearly gain in five years.

At the MCX, crude oil for June delivery closed at Rs 5,557/barrel, lower by Rs 121 (2.1%) against previous day’s close. Natural gas for July delivery closed at Rs 516.7/mmbtu, lower by Rs 3.2/mmbtu (0.61%).