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Oil Falls to Lowest Level in Almost Seven Weeks as Dollar Rises

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Aug. 23 (Bloomberg) -- Oil fell to the lowest level in almost seven weeks as the dollar strengthened against the euro, curbing the appeal of commodities as an alternative investment.

Oil dropped for a fourth day after the dollar jumped to its highest level against the euro since July 13 as investors sought the relative safety of the U.S. currency before economic reports this week that may show the recovery is faltering. Stocks fluctuated as industrials rose and technology shares declined.

“We track the perceptions of how the economy is playing out through the equities and the dollar,” said Gene McGillian, an analyst and broker at Tradition Energy, a procurement adviser in Stamford, Connecticut. “When we have worries about the economy, the market tends to head for $70.”

Crude oil for October delivery lost 72 cents, or 1 percent, to settle at $73.10 a barrel on the New York Mercantile Exchange, the lowest closing price since July 6. Futures have fallen 11 percent since Aug. 3 and 7.9 percent this year.

The dollar strengthened by 0.2 percent against the euro at 3:10 p.m. The European currency was at $1.2681, compared with $1.2712 on Aug. 20 in New York. Earlier, it touched $1.2647.

Forecasts before economic reports this week show sales of existing U.S. homes dropped 13.4 percent in July and gross domestic product slowed to a 1.4 percent annual pace in the second quarter, down from 2.4 percent last month.

Commodities Fall

The Reuters/Jefferies CRB Index of 19 commodities declined 0.4 percent to 266.03, the weakest level since July 27. Ten commodities fell, led by nickel, gasoline and natural gas.

Gasoline for September delivery lost 4.41 cents, or 2.3 percent, to $1.881 a gallon on the Nymex, its lowest settlement since Dec. 21.

Hedge funds and other large speculators reduced wagers on rising gasoline prices by 74 percent in the week ended Aug. 17, the most since October 2006, the Commodity Futures Trading Commission reported on Aug. 20.

“We’re approaching the time of year when crude oil demand does fall off,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “This is when the bubble imploded in 2008. The rubber band is stretched. If the rubber band snaps at this level, we could see a test of the $70 psychological barrier.”

A decline below $70 could cause oil to test its May lows in the mid-$60s, he said, adding that crude is “in a steep bearish channel.”

Demand Decline Typical

Oil demand typically declines in the third quarter as the peak U.S. summer driving season ends and refiners shut down plants for scheduled maintenance.

Deliveries of gasoline, a measure of demand, were little changed at an average 9.257 million barrels a day in July, compared with 9.26 million in July 2009, the industry-funded American Petroleum Institute reported Aug. 20. It was the second-lowest July demand number since 2003.

The U.S. government reported last week that total petroleum stockpiles, a figure that combines oil and fuel inventories, surged to the highest level in at least 20 years.

U.S. oil supplies probably increased 750,000 barrels last week from 354.2 million in the prior week, based on the median estimate of 10 analysts surveyed by Bloomberg News ahead of an Energy Department report Aug. 25. Eight respondents forecast an increase and two a decline.

Gasoline inventories probably dropped by 275,000 barrels from 223.3 million barrels, the survey showed. Seven analysts forecast a decline and three an increase.

Stocks Fluctuate

Oil also decreased as equities fluctuated after two weeks of losses.

The Standard & Poor’s 500 Index rose 1.6 points to 1,073.29 as the Nymex floor closed after falling to a four-week low last week. The Dow Jones Industrial Average gained 17.48 points to 10,231.10. Both indexes closed down 0.4 percent.

“The correlation is still strong with equities and it’s likely to remain so,” said Roland Stenzel, a crude and carbon trader at E&T Energie Handelsgesellschaft mbH in Vienna. “The market continues to fluctuate.”

Tropical Storm Danielle, which is forecast to become the second hurricane of the Atlantic season later today, is likely to bypass the Gulf of Mexico, home to about 31 percent of U.S. oil output, according to a 10:45 a.m. advisory from the U.S. National Hurricane Center in Miami.

Brent crude for October delivery lost 64 cents, or 0.9 percent, to settle at $73.62 a barrel on the London-based ICE Futures Europe Exchange.

Oil volume in electronic trading on the Nymex was 372,419 contracts as of 3:12 p.m. in New York. Volume totaled 436,233 contracts Aug. 20, 30 percent below the average of the past three months and the lowest level since July 26. Open interest was 1.24 million contracts.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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