Crude Oil Falls as Dollar's Gain Reduces Appeal of Commodities

Crude oil fell for the third time this week as a strengthening U.S. dollar reduced the appeal of commodities as an inflation hedge.

Oil futures have more than doubled in 12 months as investors sought refuge from a declining dollar. The currency gained against the euro and yen today on signs a rebound in U.S. retail sales will support the Federal Reserve's case for raising interest rates to curb inflation.

``These moves that have been caused by the dollar underscore the enormous weight the financial community has in the oil market,'' said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``Our little oil patch is much smaller than the equity or bond markets.''

Crude oil for July delivery fell $3.09, or 2.3 percent, to $133.29 a barrel at 12:21 p.m. on the New York Mercantile Exchange. Futures reached a record $139.12 a barrel on June 6.

U.S. retail sales rose 1 percent in May, twice as much as forecast, as Americans used their tax rebates to shop at electronics and department stores, and record gasoline prices swelled service-station receipts, a Commerce Department report today showed.

The dollar increased 0.9 percent to $1.5411 per euro at 11:42 a.m. in New York, from $1.5552 late yesterday. The U.S. currency rose 1 percent to 107.99 yen, from 106.96.

``The dollar has played a very important role in the daily move of the oil market,'' said Eric Wittenauer, an analyst at Wachovia Securities in St. Louis. ``At this point I don't see the market moving much lower because commodities, in particular oil, still compare favorably to stocks.''

Stock Indexes

Rising returns have also spurred investment in commodities. Oil in New York has gained 38 percent this year, as the Standard & Poor's 500 Index dropped 8 percent and the Dow Jones Industrial Average declined 7.6 percent.

Saudi Aramco, the world's largest state oil company, will supply customers in Asia, Europe and the U.S. with full volumes of the crude oil they requested under their monthly loading programs for July, refinery officials said today. Earlier this year, refiners in Europe and the U.S. received less than the full contracted volumes.

Saudi Arabian Oil Minister Ali al-Naimi said last month, when President George W. Bush was visiting the kingdom, that Saudi Arabia would raise output by 300,000 barrels a day to 9.45 million barrels a day in June in response to rising demand from its customers.

Jeddah Meeting

The kingdom this week called for a meeting between producers, consumers and financial institutions to discuss the increase in oil prices, which it called ``unjustified.'' Talks will be held in Jeddah, Saudi Arabia, on June 22.

OPEC President Chakib Khelil ruled out the possibility that the group will raise output at the Jeddah meeting to curb record prices. The Organization of Petroleum Exporting Countries, which supplies more than 40 percent of the world's crude oil, won't consider changing its output target before its next meeting in September, Khelil said in an interview today in Algiers.

``America is responsible,'' for record oil prices, Libyan leader Colonel Muammar al-Qaddafi said in a speech in Tripoli that was published by state-run news service JANA. ``The wars in Iraq and Afghanistan, and the threats, that's what's pushing oil prices up.''

Brent crude oil for July settlement declined $2.17, or 1.6 percent, to $132.85 a barrel on London's ICE Futures Europe exchange. Prices climbed to a record $138.12 on June 6.

Surcharge Introduction

UAL Corp.'s United Airlines, the world's second-largest carrier, said it will start charging customers $15 each way for a single checked bag on domestic flights, matching a similar fee by AMR Corp.'s American Airlines.

``With record-breaking fuel prices, we must pursue new revenue opportunities,'' John Tague, United's chief operating officer, said in the statement today.

American Airlines, United Airlines, Continental Airlines Inc. and Delta Air Lines Inc. have announced reductions of at least 11 percent of capacity, beginning later this year.

``The oil market is also not a bad bet because there is little excess spare capacity as global demand grows,'' Wittenauer said. ``In the developed world we are starting to see some changes in consumption patterns but it's the developing world that's still the backbone of demand growth.''

Global Demand

Global oil consumption will probably increase 1 million barrels to 86.38 million barrels a day this year, the U.S. Energy Department said on June 10.

A proposed strike by Chevron Corp. employees in Nigeria is threatening to halt as much as 350,000 barrels a day of crude production and 14 million cubic feet a day of natural gas from the company's 32 fields in the West African country.

Nigeria's senior white-collar oil workers' union is making a final effort to avoid a strike during talks with Chevron's local unit, an official said.

``The talks are not going well,'' said Lumumba Okugbawa, deputy secretary general of Petroleum & Natural Gas Senior Staff Association of Nigeria, or Pengassan. The strike might come as early as tomorrow should talks break down, he said.