Oil drops near $100 on stronger dollar

SINGAPORE (AP)- Oil prices fell to hover above $100 a barrel Tuesday as a stronger U.S. dollar made energy futures less attractive to investors.

The greenback’s advance Monday made dollar-denominated oil lose some of its recent appeal to investors.

Many analysts believe the dollar’s recent depreciation was the primary reason oil surged to a record near $112 a barrel last week, since oil and other commodities are seen as a hedge against inflation and a falling dollar. Now that the dollar is rising, the effect is reversing.

Light, sweet crude for May delivery fell 57 cents to $100.29 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract fell 98 cents to settle at $100.86 a barrel on Monday.

The recent decline in oil prices has been far from decisive, and there are signs that some investors are willing to look beyond the dollar for future price direction. Some investors have sold contracts on concerns that a slowing U.S. economy would dampen crude oil demand. Last week, oil prices dipped in part on worry that Bear Stearns’ near-collapse was a sign of significant economic problems.

Some analysts believe oil’s recent declines are temporary — a correction in a bull market — and that prices will forge higher again when the Federal Reserve cuts interest rates again, as is widely expected. Lower interest rates tend to weaken the dollar.

"It’s quite possible for the conditions that have pushed oil prices higher to be re-established," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "U.S. interest rates are low and they will be cut further. In this situation it’s possible we’ll see renewed vulnerability of the U.S. dollar at some point."

But there is an opposing school of thought that argues prices have risen far higher than can be justified by the oil market’s underlying supply and demand fundamentals. These analysts believe prices will fall soon and sharply — regardless of what happens to the dollar.

"One of the things that may count against oil somewhat is the fact that we’re now entering into a sort of lower demand part of the year, and they will see some inventory building occurring," Moore added.

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