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Oil price falls as dollar gets stronger

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Oil prices fell on Friday in volatile trade as the stronger dollar and a stock market slide erased earlier gains, and crude started the year with a weekly loss.

Markets were buffeted as a government report showed the U.S. unemployment rate declined and that while the economy added jobs in December, fewer jobs were created than expected.

Brent crude posted steeper losses after a Thursday fire halted production at a Canadian Natural Resources Ltd (CNQ.TO) oil sands facility in Alberta, one factor that prompted investors to unwind positions that had sent Brent’s premium to U.S. crude soaring.

U.S. crude oil for February delivery fell 35 cents to settle at $88.03 a barrel, slipping from an $89.45 intraday peak. Friday’s $87.25 low was the weakest since prices fell to $87.01 intraday on December 17.

For the week, oil ended down 3.7 percent, the biggest percentage loss since November. Crude ended 2010 up 15 percent on the year and started 2011 on Monday at a 27-month peak.

Money managers sharply cut their net long crude futures positions on the New York Mercantile Exchange in the week to Tuesday from the previous period, the Commodity Futures Trading Commission said late on Friday.

Total U.S. crude futures trading volume continued its rebound after the holidays at just above 1 million lots traded near the end of post-settlement trading, well above the 250-day average of 670,799 lots, according to Reuters data.

Brent crude trading volume was just under 500,000 lots, down from 630,000 lots on Thursday.

In London, on Friday ICE Brent crude for February fell $1.19 to $93.33 a barrel, trading from $92.59 to $94.58.

“The monthly employment report provided today’s main feature but interpretation of the numbers was mixed and the equities came under pressure as the session progressed,” Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois, said in a research note.

“This risk aversion was further facilitated by (near) four-month lows in the euro.”

EURO WEAKNESS HELPS BOOST DOLLAR

The euro fell against the dollar on concerns about using euro zone bonds of peripheral countries as collateral for bank loans and as U.S. employment data supported a stronger outlook for the dollar than the euro.

A stronger dollar typically pressures dollar-denominated oil prices because it raises the value of currency paid producers and makes oil more expensive for consumers with other currencies.

The U.S. government’s December jobs report showed nonfarm payrolls rose 103,000 in December, below expectations, but the unemployment rate fell to 9.4 percent from 9.8 percent in November, its lowest rate in 1-1/2 years.

Oil and the stock market initially found support from Federal Reserve Chairman Ben Bernanke’s cautiously optimistic comments about the economic recovery in his first testimony to Congress on the economy since the Fed launched a controversial plan to buy an additional $600 billion in government bonds.

But U.S. stocks stumbled as financials were hit by a court ruling that voided two home foreclosures and on the jobs report judged to be less than stellar.

BRENT-U.S. CRUDE DISCONNECT

The premium of Brent over U.S. crude prices fell to $5.30 a barrel based on settlement prices, after the spread was as much as $6.56 intraday on Thursday, the widest since May 3, 2010.

Analysts said Brent’s price premium to U.S. crude was due a correction from the high level reached as crude stockpiles surged at the Cushing, Oklahoma, oil hub, delivery point for the NYMEX light sweet crude contract.

Snags to supply from Canada were expected to help ease the high stocks at Cushing and there was no estimate from the Canadian Natural on Friday about on when the 110,000 barrel-a-day Horizon oil sands facility in Alberta would resume production after Thursday’s fire.

Traders and analysts said portfolio reallocations by index funds also helped narrow the Brent-U.S. crude spread and limited the U.S. crude price drop.

Source: Reuters

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