Oct. 8 (Bloomberg) -- Crude oil dropped more than $2 a barrel for the first time in almost two months as the dollar rebounded against the euro, reducing the appeal of commodities as an investment and on speculation oil consumption will fall.

Demand for commodities priced in the U.S. currency may decline as the dollar extends gains against the euro. Commodities often move in the opposite direction of the dollar. Crude-oil consumption usually eases in October as refineries make repairs and upgrade units before winter.

``The dollar is finally rebounding, which is weighing on the commodities,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``The complaints by the Europeans about the dollar's weakness signal that we've found a bottom, at least for the short term.''

Crude oil for November delivery fell $2.20, or 2.7 percent, to settle at $79.02 a barrel at 2:45 p.m. on the New York Mercantile Exchange, the lowest close since Sept. 11. It was the biggest one-day decline since Aug. 16. The contract touched $78.35 during the session, the lowest intraday price since Sept. 17. Futures touched $83.90 a barrel on Sept. 20, the highest since the contract was introduced in 1983.

The dollar rose 0.7 percent to $1.4038 per euro at 1:27 p.m. in New York. It has climbed 1.7 percent since falling to an all- time low of $1.4283 on Oct. 1.

Members of the Organization of Petroleum Exporting Countries have said a falling dollar justified higher prices because oil- producing countries sell crude oil in dollars and often buy goods in euros.

In U.S. dollars, West Texas Intermediate, the New York- traded crude-oil benchmark, is up 29 percent so far this year. Oil is up 21 percent in euros, 24 percent in British pounds and 28 percent in yen.

Bearish Sentiment

``Growing bearish sentiment will soon start driving prices lower,'' said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis. ``The dollar is recovering, there's been no supportive weather and we'll probably get another inventory increase this week.''

U.S. crude-oil supplies rose in the past two weekly reports by the Energy Department. Inventories climbed 1.5 million barrels in the week ended Oct. 5, according to the median of responses by 11 analysts surveyed by Bloomberg News.

The department is scheduled to release its weekly report on inventories on Oct. 11 at 10:30 a.m. in Washington, a day later than usual because of today's Columbus Day holiday.

Crude oil will fall this week, a Bloomberg News survey on Oct. 5 showed. Twenty-four of 32 analysts surveyed, or 75 percent, said prices will decline, the most bearish response since the survey was introduced in April 2004.

Weather Peg

``Crude prices in the coming months will be pegged to the weather,'' Jean Louis Schilanski, a director at the Union of French Petroleum Industries, said in an interview in Paris. ``The question the market is asking is whether this winter will be mild or cold and that is what will determine the price of crude.''

The threat of hurricanes disrupting production eases in October because fewer storms typically form. The Atlantic hurricane season began June 1 and ends Nov. 30. The peak of the season is typically between mid-August and mid-October. Four hurricanes have formed this season, according to the U.S. National Hurricane Center in Miami.

Brent crude oil for November settlement fell $2.32, or 2.9 percent, to $76.58 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since Sept. 14.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: October 8, 2007 16:17 EDT