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Oil prices nearly flat as dollar strengthens

OIL prices were esentially flat to end the week after Federal Reserve Chairman Ben Bernanke said this week that interest rates will have to be raised when the US economy recovers in order to avoid inflation.

It has been the weak dollar that has attracted billions in investments in energy markets this year because oil is priced in the US dollar, essentially making crude cheaper globally.

The dollar bounced back yesterday following Bernanke's comments, and crude prices rose only 8 cents after they had rallied strongly Thursday wheat he US currency hit a 14-month low against the euro.

Benchmark crude for November delivery settled at US$71.77 on the New York Mercantile Exchange.

The Paris-based International Energy Agency raised its expectations for oil demand in 2010, but not by much. The IEA said demand will increase by 1.7 percent, largely from rebounding economies in the Americas and in Asia.

Major corporations and consumers have pared back on energy use as they ride out the recession. Americans, the biggest energy consumers in the world, have cut way back on driving for the past year.

Yet it has been the falling dollar that has driven oil prices higher for months.

Bernanke said Thursday at a fed conference that interest rates will remain near a record low for an extended period.

"At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road," Bernanke said.

Oil has traded in a narrow range this week and prices have moved between US$60 and US$75 since spring as demand for crude remains tepid even with signs that the economy has moved out of recession.

For the moment, oil markets have reached an equilibrium that has both producers and consumers happy, said Jim Ritterbusch of Ritterbusch and Associates.

Producers say they need at least US$70 per barrel to continue exploring for more oil. With US prices at the pump hovering around US$2.50 per gallon, few Americans are complaining. Natural gas prices are also very low, meaning an easy winter for most homeowners.

In other Nymex trading, heating oil rose by less than a penny to US$1.8528 and gasoline fell by 1.117 to settle at US$1.768 a gallon. Natural gas for November delivery lost 19.3 cents to settle at US$4.77 per 1,000 cubic feet.

In London, Brent crude rose 23 cents to settle at US$70 per barrel on the ICE Futures exchange.


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