The Wall Street Journal: Crude Falls on Stronger Dollar, Economic Worries

November Contract
Slips 1.2% to $87.56;
Natural Gas Declines
By ELIZABETH LANDAU
October 23, 2007; Page C11

Crude-oil futures fell on the final day of the November contract as the dollar strengthened and traders considered the potential for an economic slowdown. Reports that a Kurdish rebel group would declare a cease-fire with Turkey also weighed on prices.

Light, sweet crude for November delivery on the New York Mercantile Exchange fell $1.04, or 1.2%, to $87.56 a barrel. The December contract, now the front-month contract, fell 93 cents, or 1.1%, to $86.02 a barrel.

Yesterday’s session marked the second straight pullback in crude futures. The movement of the dollar has been pivotal in crude’s volatility and contributed to yesterday’s selloff. The dollar hit a low against the euro yesterday morning before rebounding. A weak dollar makes oil cheaper for traders abroad who use other currencies, and the stronger dollar index sent a negative signal to crude prices.
 
“The U.S. dollar is a big factor here,” said Walter Zimmerman, vice president at United Energy, an energy brokerage and consulting firm in Jersey City, N.J. “The dollar was overdue for a rally, and crude was due for a selloff.”

Fears of an economic slowdown also figured into decisions to sell, analysts said.

“The biggest worry in the marketplace right now is the future health of the economy,” said Addison Armstrong, an analyst at TFS Energy Futures. “I think we have a period of uncertainty.”

Traders also worried the credit crisis and the housing crunch would lead to a drop in petroleum demand, said Andy Lebow, senior vice president of energy futures at MF Global in New York.

“We’ve been rallying while these concerns have been on the forefront, but at some point, even the most optimistic crude trader has to take a look at the U.S. economy,” Mr. Lebow said.

Prices also were weighed down, in part, by news that rebels from the Kurdistan Workers’ Party, known by its Kurdish acronym, PKK, would announce a cease-fire.

Iraqi President Jalal Talabani’s office said the Kurdish rebels had planned to announce a cease-fire yesterday. But the PKK later said that a cease-fire it declared in June was still in place, according to the Kurdish news agency Firat.

Crude-oil futures hit records last week as tensions between Turkey and the PKK escalated, particularly after Turkey’s Parliament authorized a potential military strike against PKK bases in northern Iraq. The PKK has been fighting the Turkish government since 1984.

Crude oil’s climb last week made some analysts revise their outlooks for near-term prices, and some retained those predictions despite the losses of the last two sessions.

“We are sticking by our prediction of $100 by year end,” said Mike Fitzpatrick, an analyst with MF Global in New York.

Meanwhile, Saudi Arabian Minister of Finance and National Economy Ibrahim Al-Assaf said yesterday that the high price of oil isn’t justified by demand.

“Oil demand has not risen sufficiently to justify the recent price increase,” he said to fellow ministers attending the International Monetary Fund and World Bank’s annual meetings. “Responsibility for the increase also lies with political tensions, speculation and the shortage of refinery capacity.”

In other commodity markets:

NATURAL GAS: Futures fell as traders kept their eyes on forecasts of above-normal temperatures in the Northeast and Midwest over the next 10 days, high levels of gas in storage and an absence of hurricane activity in the Gulf of Mexico. Natural gas for November delivery on the Nymex fell 15 cents, or 2.1%, to $6.891 a million British thermal units.

GOLD: Prices on the Comex division of the Nymex fell as the metal followed weaker crude oil and as precious-metals traders reacted to the strength in the U.S. dollar. October gold dropped $8.20, or 1.1%, to $755.80 a troy ounce.

–Cassandra Sweet

Write to Elizabeth Landau at [email protected]

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