Oil dips under $120 on stronger dollar
Oil prices dropped under $120 a barrel in Asia as a strengthening dollar and worries about economic growth offset supply concerns after Turkish pipeline sabotage is claimed by Kurdish rebels.Updated: Aug 08, 2008 10:22 IST
Oil prices dropped under US$120 a barrel Friday in Asia as a strengthening dollar and worries about economic growth offset supply concerns after Turkish pipeline sabotage is claimed by Kurdish rebels.
Light, sweet crude for September delivery fell 42 cents to US$119.60 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract rose US$1.14 cents overnight to settle at US$120.02 a barrel.
The gains Thursday in the U.S. came after pro-Kurdish news agency Firat said the separatist group Kurdistan Workers' Party, known as PKK, admitted sabotaging the Turkish section of the critical Baku-Tbilisi-Ceyhan pipeline earlier this week.
Turkey's state-run Anatolia news agency reported that the fire, which was said to be under control Thursday, could cause the pipeline to be shut down for up to 15 days, stoking supply worries among oil market traders.
But the dollar has also strengthened against the euro and yen after the European Central Bank and the Bank of England both left their benchmark interest rates unchanged under conflicting pressure from higher inflation and mounting concern about economic growth.
In early Asian currency trade, the euro had dropped to US$1.5216 against the dollar, while the dollar had strengthened to nearly 110 against the yen. Investors have bid up dollar-denominated oil futures this year as a hedge against a falling dollar and inflation, and any sign of a stronger greenback is often enough to give pause to a rally.
The central banks' actions fed investors sentiment that economic growth is slowing in the developed world, cutting demand for crude, said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney.
"The dollar is a factor, but the dominant factor is the perception that high oil prices coupled with slower economic growth in developed countries will curb oil demand," Moore said. "Oil prices are still at very high historical levels." In London, September Brent crude was down 24 cents at US$117.62 a barrel on the ICE Futures exchange.
In Turkey, pipeline shareholder BP PLC and other oil companies declared what's called a force majeure after the pipeline
attack, freeing them of contractual obligations to deliver crude and still providing a floor to prices.
"The disruptions to that pipeline have provided some support to oil prices," Moore said.
The fire raised the possibility of a prolonged closure of the U.S.-backed 1,100-mile pipeline, which allows the West to tap oil from Azerbaijan's Caspian Sea fields, estimated to hold the world's third-largest reserves, and bypass Russia and Iran. The pipeline can pump slightly more than 1 million barrels of crude oil per day, or more than 1 percent of the world's daily crude output. Nymex front-month crude futures are down about 18 percent from a record high of US$147.27 hit on July 11.
In other Nymex trading, heating oil futures fell 0.61 cent to US$3.2275 a gallon (3.8 liters) while gasoline prices gained 0.68 cent to US$3.0095 a gallon. Natural gas futures fell 3.1 cents to US$8.54 per 1,000 cubic feet.