Crude Oil Falls More Than $2 as Dollar Rises Against Euro, Yen

Crude oil fell more than $2 a barrel as the dollar climbed against the euro and yen, curbing the appeal of commodities.

Energy and metals dropped after Federal Reserve Chairman Ben S. Bernanke said economic risks have faded, spurring bets that interest rates will rise and bolstering the dollar. Investors looking to hedge against the dollar's drop have helped lead oil, gold, corn and gasoline to records this year.

``This is a giant move for the currency markets and it's having an impact on oil,'' said Brad Samples, commodity analyst for Summit Energy Inc. in Louisville, Kentucky. ``There's obviously some bullish sentiment still in the market, otherwise we would be down much lower.''

Crude oil for July delivery fell $2.95, or 2.2 percent, to $131.40 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Oil is heading for the biggest two- day drop in 11 weeks. Futures have more than doubled over the past year.

Prices climbed $10.75 a barrel on June 6, the most ever, to a record $139.12 as the dollar weakened and amid threats of supply disruptions.

``The weakness of the dollar is a primary reason for where crude is,'' said Justin Fohsz, a broker at Starsupply Petroleum, a division of GFI Group Inc. in Englewood, New Jersey. ``I think a lot participants are just sitting on their hands shell-shocked after Friday's move.''

The U.S. Commodity Futures Trading Commission said an interagency task force has been formed to evaluate developments in commodity markets, including the role of speculators. The task force includes the Federal Reserve, the Securities and Exchange Commission, the CFTC and the Departments of Treasury, Energy and Agriculture, the commission said today in an e-mailed statement.

Correlation

The correlation coefficient between oil prices and changes in the euro has been 0.934 for the past year, indicating the two have moved in the same direction 93 percent of the time.

``Given the correlation between crude and the dollar that we've seen, crude should be down several dollars,'' Samples said.

The dollar increased 1.2 percent to $1.5452 per euro at 2:31 p.m. in New York, from $1.5646 yesterday.

``Strong'' economic fundamentals will translate to dollar strength, Treasury Secretary Henry Paulson said today in a Bloomberg Television interview in Washington.

Oil consumers and producers will meet in Saudi Arabia on June 22 to discuss crude prices, Agence France-Presse reported, citing Abdalla el-Badri, Secretary General of the Organization of Petroleum Exporting Countries. The meeting will take place in Jeddah, Saudi Arabia, AFP cited el-Badri as saying.

Fifth Cut

The International Energy Agency cut its forecast for global oil demand for a fifth month as record prices dented consumption. The IEA reduced its 2008 forecast by about 70,000 barrels a day to 86.77 million barrels a day from 86.84 million last month, the Paris-based agency said today in its monthly report. That leaves demand growth for this year at 0.9 percent.

The IEA, which advises 27 developed nations on energy policy, was set up in 1974 in response to the Arab oil embargo.

Brent crude oil for July settlement declined $2.86, or 2.1 percent, to $131.05 a barrel on London's ICE Futures Europe exchange. Prices climbed to a record $138.12 on June 6.