Oil Falls on Stronger Dollar and Supply Forecast

Source:

"Long after bin Laden's memorials are read and effigies burned, the Fed's words will be the ones that move oil prices the farthest."

Associated Press

Oil fell Tuesday because of a stronger dollar and expectations that U.S. supplies are rising.

The dollar gained ground against the euro and other major currencies. Oil is priced in dollars and it becomes less attractive to investors with foreign currencies as the dollar gets stronger.

Benchmark West Texas Intermediate crude for June delivery fell $0.91 to $112.61 per barrel in morning trading on the New York Mercantile Exchange. In London, Brent crude dropped $1.27 to $123.85 per barrel.

Predictions that the Energy Department on Wednesday will say that crude oil supplies grew last week also pushed down the price. Analysts surveyed by Platts, the energy information arm of McGraw-Hill, expect that U.S. oil supplies increased by 1.7 million barrels.

Energy markets are still assessing what, if any, impact the death of Osama bin Laden will have on global supplies and prices. There is concern that extremists may try to attack oil fields and pipelines to retaliate for U.S. forces killing bin Laden in Pakistan on Sunday. But some analysts point out that the Federal Reserve's policies have had more influence on oil prices than bin Laden.

"It will be a few days before the full impact of bin Laden's death is calculated," energy consultants Cameron Hanover said in a note to investors. "But, long after memorials are read and effigies burned, the Fed's words will be the ones that move oil prices the farthest."

The Fed has kept short-term interest rates near zero, weakening the dollar as investors seek higher returns in other currencies.

Tuesday's decline in oil could be a sign of things to come, according to Cameron Hanover. "Prices seem overdue for a correction or reversal. It is just too early now."

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