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Crude rally hits the brakes

THE crude rally hit the brakes yesterday with a barrel of oil tumbling more than 2 percent, as the dollar strengthened after hitting a 14-month low.

Benchmark crude for December delivery fell US$1.82 to settle at US$78.68 a barrel on the New York Mercantile Exchange.

PFGBest analyst Phil Flynn said weakness in the U.S. dollar has driven the price of oil far beyond the realities of what normal supply and demand fundamentals typically bear.

"The increase was driven not so much by demand but by declining gas production and a weakening dollar," Flynn said in his morning report. "Things are out of whack as (U.S.) refiners have scaled back production to historic lows as their margins get squeezed."

Crude prices, which rose to US$82 last week, fluctuated yesterday as the dollar hit a fresh 14-month low against the euro before strengthening. Because commodities are priced in dollars, a drop in the U.S. currency makes them cheaper to international investors.

The euro touched a 14-month high of US$1.5061 in overnight trading before falling to US$1.4859 in New York yesterday afternoon. Late on Friday in New York, the euro was at US$1.5002.

Meanwhile, traders will be looking to a slew of corporate results and economic indicators for guidance this week. The Commerce Department is scheduled to announce third-quarter gross domestic product, with reports on housing prices, new home sales, consumer confidence and durable goods orders also due during the week.

Third-quarter earnings from Kellogg Co., Procter & Gamble Co. and Visa Inc. will provide insight into consumer spending while ConocoPhillips, Exxon Mobil Corp., Aetna Inc. and MetLife Inc. are also due to announce results.

"If the oil price continues to rise in the next week or two, there is a danger that economic recovery will be strangled at birth and these fears will give rise to talk that OPEC must act to put more oil into the market to cap prices," said a report from Britain's KBC Market Services. "Today's US$80 (per barrel) price is not firmly grounded because the fundamentals for both the economy and the oil market remain weak."

A new cease-fire agreement between the Nigerian government and rebels in the oil-rich Niger Delta region was helping to keep a ceiling on oil prices.

Unrest in the region had cut Nigeria's oil production by about a million barrels a day, allowing Angola to overtake it as Africa's top oil producer.

In other Nymex trading, heating oil fell 4.21 cents to settle at US$2.0335 a gallon. Gasoline for November delivery lost a penny to settle at US$2.0338 a gallon. Natural gas for November delivery slid 27.4 cents to settle at US$4.513 per 1,000 cubic feet.

In London, Brent crude for December delivery gave up US$1.66 to settle at US$77.26 a barrel on the ICE Futures exchange.


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