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Oil prices fall in volatile trading

OIL prices fell in volatile trading yesterday not long after hitting an eight-month high.

Benchmark crude for August delivery dipped US$1.60 to settle at US$69.89 a barrel on the New York Mercantile Exchange after swinging between US$68.90 and US$73.38 in early trading.

It has been an extraordinarily volatile year, which began with crude prices near US$40 per barrel, less than a third of what a barrel cost in July, before going on an extended rally for the past two months as the second quarter comes to a close.

"It's a lot of the same stuff," said Peter Beutel of Cameron Hanover, blaming huge investments by fund managers into the energy market. The influx of money has driven oil prices in the opposite direction of the dollar with major investors seeking a hedge against inflation.

"The market is not being allowed to express the supply and demand issues and that has been the problem on and off for the past two years," he said.

Oil closed 2008 at US$44.60 after falling from US$147 nearly a year ago. Crude then surged from below US$35 in March in part on investor concern that massive U.S. fiscal stimulus spending will eventually spark high inflation. Investors often buy commodities such as crude as a hedge against a weakening dollar and inflation.

Beutel said he can see oil falling back to US$55 a barrel during the next three months, maybe even lower.

Oil, which has tracked stock markets higher, also was hurt by a more than 80-point drop in the Dow Jones industrial average and a decline in consumer confidence.

All of the volatility on energy markets has played out at the pump, with U.S. retail prices going on an uninterrupted rally of about two months, before the began to fall just one week ago.

Traders are anticipating that the Energy Information Administration on Wednesday will report that crude oil stock fell 2.2 million barrels for the week ended Friday, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

Analysts also are looking for stock of gasoline, diesel and heating oil to rise and that the refinery utilization run to increase 0.4 percentage points to 87.5 percent.

In other Nymex trading, gasoline for July delivery fell 3.86 cents to settle at US$1.8972 a gallon and heating oil fell 6.55 cents to settle at US$1.718. Natural gas for July delivery fell 11 cents to settle at US$3.835 per 1,000 cubic feet.

In London, Brent prices fell US$1.69 to settle US$69.30 a barrel on the ICE Futures exchange. Earlier in the session, Brent peaked at US$73.50.


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