Business

Published: Saturday October 31, 2009 MYT 9:22:00 AM
Updated: Saturday October 31, 2009 MYT 11:24:50 AM

Oil trades below US$78 as US dollar strengthens


NEW YORK: Oil prices fell to below $78 a barrel Friday on a stronger dollar and worries that a drop in consumer spending might make the U.S. economic recovery unsustainable.

Benchmark crude for December delivery fell $2.87 to settle at $77 a barrel on the New York Mercantile Exchange.

The contract rose $2.41 to settle at $79.87 on Thursday and has traded near $80 a barrel all week.

Oil has been moving higher recently on signs that the U.S. economy is improving and on a weaker dollar.

The Commerce Department said Thursday that the U.S. economy grew at a 3.5 percent annual pace in the third quarter, the best showing in two years and breaking four straight quarters of declines.

Since oil is largely bought and sold in dollars, investors holding stronger currencies can buy more crude for less.

But the dollar rose on Friday, and crude fell sharply, mostly on a dour consumer spending report.

The Commerce Department said U.S. consumer spending plunged in September by the largest amount in nine months.

And evidence that U.S. consumers are still holding off on spending drove stocks sharply lower, tempering enthusiasm from the day before over the economy's growth in the third quarter.

A drop in the mood of consumers added to the day's bad news.

The market is paying close attention to indicators of consumer spending, which is still in a slump despite improvements in other parts of the economy such as manufacturing and housing.

Consumer spending makes up two-thirds of the overall U.S. economy.

Despite some recent positive economic reports, some analysts remained guarded about the strength of the global economic recovery.

JBC Energy in Vienna said that "oil still looks to be overpriced and an increase in GDP after four quarters of decreases does not mean the U.S., or the rest of the world, is out of the woods yet."

Analysts point to still fragile demand and the accumulation of huge stocks of oil and petroleum products as reasons to be cautions.

The dollar rose Friday, with the euro dropping to $1.4796 in New York morning trading from $1.4845 late Thursday.

The British pound fell to $1.6520 from $1.6548.

In other Nymex trading, natural gas fell 1.7 cents to settle at $5.045 per 1,000 cubic feet.

Heating oil fell 7.31 cents to settle at $1.9811 a gallon. Gasoline for November delivery fell 7.6 cents to settle at $1.9432 a gallon.

In London, Brent crude for December delivery fell $2.84 to settle at $75.20 on the ICE Futures exchange. - AP


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