New York: Oil prices fell to below USD79 a barrel on Friday as the strengthening US dollar outweighed news that the US economy grew again in the third quarter after contracting for a full year.
By afternoon in Europe, benchmark crude for December delivery was down USD1.36 to USD78.51 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose USD2.41 to settle at USD79.87 on Thursday.
Some analysts say oil may soon approach its high for 2009 of USD82 a barrel on evidence the US economy, the world's largest, is recovering.
The Commerce Department said the US economy grew at a 3.5 percent annual pace in the third quarter, the best showing in two years and breaking four straight quarters of declines.
The Dow Jones industrial average jumped 2.1 percent on Thursday.
"The move higher in oil prices is, in our view, fundamentally justified," Barclays Capital said in a report. "On the macroeconomic front, so far the path of recovery has surprised to the upside."
Others, however, remained guarded about the strength of the economic recovery.
JBC Energy in Vienna said that "oil still looks to be overpriced and an increase in GDP after four quarters of decreases does not mean the US, or the rest of the world, is out of the woods yet."
Analysts point to still fragile demand and the accumulation of huge stocks of oil and petroleum products as reasons to be cautions.
"With the fervent mood sweeping oil markets (Thursday) the F word — fundamentals — still seems to be far from many minds," JBC noted.
Oil prices are also affected by the dollar's exchange rate. Oil is largely bought and sold in dollars, which allows investors holding currencies like the euro or yen to buy more crude when the US currency falls and sell when the dollar strengthens.
"It seems quite clear to us that the (Nymex) futures market is currently part of an dollar-led asset bubble," said Olivier Jakob of Petromatrix in Switzerland.
On Friday, the euro bought USD1.4760 in European morning trade, down from USD1.4845 late Thursday in New York, while the British pound was also lower, buying USD1.6521 compared with USD1.6548.
In other Nymex trading, heating oil was down 3.42 cents to USD2.02 a gallon. Gasoline for November delivery fell 3.90 cents to USD1.98 a gallon, while natural gas for December delivery advanced 14.8 cents to USD5.21 per 1,000 cubic feet.
In London, Brent crude for December delivery was down USD1.45 to USD76.51 on the ICE Futures exchange.
Bureau Report
First Published: Friday, October 30, 2009, 22:39