Oil prices dive on stronger dollar

November 13, 2010 | 09:12

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Oil prices slumped on Friday, after hitting two-year highs the previous day, as traders took their cue from a stronger dollar and speculation over a Chinese interest rate rise.

New York's main contract, light sweet crude for December, fell to $84.88 a barrel, down $2.93 from Thursday's closing level.

London's Brent North Sea crude for December dropped $2.47 to $86.34 in London trade.

The drop in oil prices came "in reaction to fears about Chinese inflation and the worry... that China will increase its interest rates and that would impact growth," said analyst Andy Lipow of Lipow Oil Associates.

Traders fear that a rise in Chinese interest rates could slow down its economy, which has been a bulwark of the global economic recovery.

Meanwhile, the euro slid against the dollar as investors fretted over indebted eurozone nations, despite EU heavyweights rushing to downplay those concerns at the G20 meeting in Seoul.

A stronger dollar makes it more expensive for investors holding other currencies to buy dollar-denominated commodities like crude oil.

In recent weeks, the energy market has been buoyed by a weaker dollar and the prospect of a stronger-than-expected global economic recovery.

Traders also absorbed the latest demand forecasts from the International Energy Agency (IEA) on Friday.

The IEA raised its 2010 global oil demand growth forecast to an average of 87.3 million barrels per day, partly due to a stronger-than-expected rebound in the third quarter, but pointed to a modest slowdown in 2011.

The Paris-based IEA is the energy monitoring and strategy arm for the world's leading industrialized nations that comprise the Organization for Economic Cooperation and Development (OECD).

AFP

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