Wednesday 4th May, 2008

 

Oil settles below US$129

 
 
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Oil prices fell sharply yesterday, after hitting a series of record highs in previous sessions, as the dollar strengthened and traders pulled back amid concerns of softening demand.

Light, sweet crude traded down $3.34 to settle at US$128.85 on the New York Mercantile Exchange. The oil market was closed on Monday in observance of the Memorial Day holiday.

Crude prices rallied last week ahead of the holiday weekend, which marks the beginning of the season when Americans typically do their heaviest driving. On Thursday, oil prices hit a record US$135.09 a barrel, one day after soaring above US$130 for the first time. Concerns about short supplies and geo-political instability also helped fuel the rally.

“You usually see prices bid-up before the holiday,” Stephen Schork, an oil industry analyst and publisher of the Schork Report. “Today we’re seeing some of the air let out of the balloon.”

If the market follows its typical seasonal pattern, Schork thinks crude’s “highs have been put in.” Though he added that the market has seen “a tremendous amount of support” and the seasonal pattern may not hold this year.

A stronger dollar also helped pressure oil prices yesterday. The euro bought $1.570, down from $1.5774 on Monday evening while the British pound fell to $1.977 from $1.982 in New York.

Investors who buy oil futures to hedge against inflation often sell the commodity when the dollar rises. And a stronger dollar makes oil less attractive to overseas buyers.

Meanwhile, the current national average price for a gallon of regular gasoline is $3.937, up slightly from $3.936 on Monday, according to AAA.

Many analysts are expecting the high price of gas to have crimped sales over the holiday weekend. But the Department of Energy’s report on gas will not be released until next week.