Oil prices drop in Asia as dollar rises, but traders see further gains

Posted by SM Maulana

Eileen Ng, THE ASSOCIATED PRESS

KUALA LUMPUR, Malaysia – Oil prices fell in Asian trading Thursday as the dollar climbed, but traders said the outlook was for further gains amid worries about global supplies.

Midday in Singapore, light, sweet crude for July delivery was down 91 cents at US$135.47 a barrel in electronic trading on the New York Mercantile Exchange.

“Even though there is a little bit of pull back Thursday morning, the underlying sentiment is probably bullish in the near term due to concerns in the supply side,” said David Moore, commodity strategist with the Commonwealth Bank of Australia in Sydney.

Oil prices rose sharply Wednesday after the U.S. Energy Department said oil inventories fell 4.6 million barrels last week. Analysts surveyed by energy research firm Platts expected a much smaller decline of about 1.4 million barrels. The contract jumped US$5.07 to settle at US$136.38 a barrel Wednesday after reaching as high as US$138.30.

Gains in the dollar Thursday against the euro and yen contributed to the dip in oil, he said.

Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker greenback makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar’s protracted decline is the primary reason oil prices have doubled over the past year.

The euro retreated to US$1.5398 in Asian trading Thursday from US$1.5563 late Wednesday in New York. The dollar rose to 107.59 yen from 106.86 the previous day.

Consumers in Malaysia and India are grappling with higher gasoline and other fuel prices after governments in both countries cut subsidies a week ago, declaring that soaring global crude prices were straining government finances.

In Malaysia, gasoline pump prices were hiked by a stunning 41 per cent to 2.70 ringgit a liter – still lower than many other Asian nations. Prime Minister Abdullah Ahmad Badawi, faced with public protests, promised not to raise prices again this year.

Moore said the price hikes are likely to affect global demand but it’s unclear to what extent.

The market will also be watching out for a June 22 meeting of oil producing countries and consumers to tackle soaring energy prices, he said. The meeting is called by world’s largest oil producer Saudi Arabia, which has said the current oil price was unjustified.

Other factors supporting oil prices were a higher-than-expected rise in Chinese fuel imports in the first 5 months this year, and Royal Dutch Shell PLC’s decision to extend force majeure on some Nigerian oil shipments.

The legal declaration that means the company can’t meet contractual obligations to supply some customers. The company first made the declaration following a militant attack in April.

In other Nymex trading Thursday, July gasoline futures were down marginally at US$3.4580 a gallon while heating oil futures were down a bit at $3.9652 a gallon respectively. July natural gas futures were down 2.8 cents at $12.632 per 1,000 cubic feet.

July Brent crude fell $1.26 at $133.76 a barrel on the ICE Futures exchange.

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