Crude Oil Falls as Stronger Dollar Curbs Appeal of Commodities

Crude Oil Falls as Stronger Dollar Curbs Appeal of Commodities

March 27 (Bloomberg) -- Crude oil in New York fell the most in two weeks as the dollar’s gain against the euro reduced the appeal of commodities to investors.

Oil dropped as much as 5 percent after the U.S. currency rebounded against the euro on evidence the recession is deepening in Europe. A stronger dollar makes commodities less attractive as an alternative investment. The Federal Reserve said this week it will buy more than $1 trillion in government and mortgage debt to help end the recession and credit crisis.

“The stronger dollar is bringing all of the commodities down,” said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. “The Federal Reserve’s policies have become the major driver of the commodities.”

Crude oil for May delivery fell $2.41, or 4.4 percent, to $51.93 a barrel at 11:03 a.m. on the New York Mercantile Exchange. The contract is down 0.3 percent this week. Prices are up 16 percent so far this year.

The Reuters/Jefferies CRB Index of 19 prices fell as much as 4.78, or 2.1 percent, to 222.96. The index is heading for the biggest one-day drop since March 5.

The euro, which is used in 16 nations, fell the most against the dollar in more than a month after Europe’s statistics office said industrial orders in the region plunged in January. The common currency declined as much as 1.9 percent to $1.3264, the biggest intraday drop since Feb. 17, before trading at $1.3302 at 11:06 a.m. in New York.

U.S. and European stocks retreated, trimming a third- straight weekly advance for both markets. The Standard & Poor’s 500 Index declined 1.3 percent to 822.17. The gauge is up 13 percent in March. The Dow Jones Industrial Average fell 120.67 points, or 1.5 percent, to 7,803.89.

Overdue Correction

“This correction is long overdue,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “We were up pretty much all week on the rising stock market and weak dollar. The fundamentals don’t support that kind of a move.”

U.S. oil supplies rose 3.3 million barrels to 356.6 million last week, the highest since July 1993, an Energy Department report on March 25 showed.

Goldman Sachs Group Inc. said oil’s rally is vulnerable to a correction because near-term demand remains constrained.

The 11 members of the Organization of Petroleum Exporting Countries bound by quotas will cut supplies by 0.2 percent this month as the group stalls in completing record production constraints, according to preliminary estimates from consultant PetroLogistics Ltd.

Oil supply from the 11 members with quotas will average 25.9 million barrels a day in March, down from 25.95 million barrels a day in February, Conrad Gerber, the founder of PetroLogistics, said today. Members have a production target of 24.845 million barrels a day. Iraq has no quota.

Brent crude oil for May settlement fell $1.93, or 3.6 percent, to $51.53 a barrel on London’s ICE Futures Europe exchange.