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THE WALL STREET JOURNAL: Crude Oil Falls Below $100

As Stronger Dollar Prompts Retreat
By BRIAN BASKIN
March 5, 2008; Page C5

Crude-oil futures fell sharply yesterday as speculators drawn to the market by the weak dollar bailed at the first sign that the currency was strengthening.

Light, sweet crude for April delivery settled $2.93, or 2.9%, lower at $99.52 a barrel on the New York Mercantile Exchange.

The drop at settlement was the largest percentage decline since Feb. 1, while the intraday low of $98.87 was last matched Feb. 26. Most of the losses came in the morning, when crude shed $4 in two hours, before stabilizing around $100.

Investors pulled out of futures as the dollar gained against the euro, breaking a streak of five sessions where it hit a record low. The dollar’s fall has made oil and other commodities priced in U.S. currency more attractive to speculators. The flow of investors out of commodities included the biggest fall in front-month reformulated gasoline blendstock, or RBOB, futures since May 1, and the largest drop in gold and silver since Feb. 5.

“It’s all the funds eliminating positions, all the speculators getting out,” said Kevin Mallon at Prebon Energy.

With attention shifting from the dollar and other technical factors to the state of oil supply and demand, crude prices had difficulty finding support above $100 a barrel. The market was reminded that the record prices seen recently are part of a bubble with little real-world support, said Matt Zeman, head of trading at LaSalle Futures Group in Chicago.

“If you look at our economy … logically demand for crude is going to fall,” he said. “If we get back under $100, crude could fall quite a bit.”

Analysts surveyed by Dow Jones expect U.S. crude inventories for the week ending Feb. 29 to have increased 2.3 million barrels in U.S. Department of Energy data to be released today. A gain would mark the eighth-straight week that stocks have risen, though energy markets haven’t reacted strongly to this news in recent weeks.

The growth in crude inventories is one reason that the Organization of Petroleum Exporting Countries is widely expected not to increase output when the group meets today. Several oil ministers from OPEC member nations have called the market well-supplied. Although energy markets have factored this outcome into the price of oil, some volatility should be expected around the meeting, said Mark Waggoner, president of Excel Futures in Huntington Beach, Calif.

“It’s going to gyrate the price around, with people taking profits ahead of the meeting and posturing for results after the meeting,” he said.

A mix of events in oil-producing regions, including tensions along the border between Colombia and Venezuela, failed to influence the market one way or the other, traders said.

In other commodity markets:

GOLD: Profit-taking prompted gold prices to turn lower, with some of the move linked to the pullback in crude oil. The correction came at a time when many were watching to see if gold futures would break through the psychological $1,000-an-ounce level that traders and analysts have been talking about for some time. April gold fell $17.90 to $966.30 an ounce on the Comex division of the Nymex.

WHEAT: Prices fell on profit-taking and a general selloff of commodities. Chicago Board of Trade March wheat slipped 15.50 cents to $10.7750 per bushel.

Write to Brian Baskin at [email protected]

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