Oil prices drop under 123 dollars

ABS-CBN News

Posted at Jun 05 2008 12:29 AM | Updated as of Jun 05 2008 08:29 AM

Agence France-Presse

LONDON - Oil prices fell on Wednesday, extending recent heavy losses on the back of a stronger dollar and as investors reacted to rising motor fuel inventories in the United States.

New York's main oil futures contract, light sweet crude for July delivery, shed 1.58 dollars to 122.73 dollars a barrel.

Brent North Sea crude for July lost 1.68 dollars to 122.90 dollars.

The market slid lower after the US government's Energy Information Administration said American gasoline (petrol) reserves grew 2.9 million barrels in the week ending May 30.

That beat market expectations for a gain of just 825,000 barrels and pointed towards slowing demand in the world's biggest energy consuming nation.

The market had tumbled on Tuesday as the dollar strengthened, dampening demand because dollar-priced oil becomes more expensive for foreign buyers.

Prices slumped by almost three-and-a-half dollars as the US unit surged in response to comments from US Federal Reserve chairman Ben Bernanke, who said that Fed policymakers were "attentive" to the sagging dollar.

"The US central bank is starting to focus on inflation again and this could support the dollar while putting more pressure on oil prices," said Sucden analyst Andrey Kryuchenkov.

"In addition to a potentially stronger dollar, investors are still concerned about signs of flattening demand for energy due to high prices," he added

Oil prices have now lost about 12 dollars since striking record peaks of 135.14 dollars in London and 135.09 dollars in New York on May 22.

"The days of establishing new record prices appear to be temporarily over," said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.

Despite recent losses, oil prices have still gained almost a quarter since they smashed through 100 dollars per barrel at the start of 2008 and traders remain worried that the high cost could erode global energy demand.

"The market focus is currently more on the inflows of demand destruction news," said Petromatrix analyst Olivier Jakob.

"India is the latest country to be added to the list of emerging countries reducing oil subsidies."

India's government on Wednesday boosted fuel prices again to stem huge losses at state-run oil firms, stirring widespread political anger and worries about higher inflation.

India, which imports 70 percent of its oil needs to feed its fast-growing economy but is faced with surging global crude costs, raised petrol prices by five rupees (12 cents) a liter and diesel by three rupees.

The increases were much higher than rises announced in February but not enough to compensate for the increase in global fuel costs.

Malaysia announced similar moves Wednesday as the government there sought to ease the massive burden of fuel subsidies.