Oil prices drop as dollar shines

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World oil prices dropped on Wednesday as the dollar rallied and traders awaited the weekly snapshot of energy inventories in the United States, the world's biggest consumer of crude.

Brent North Sea crude for delivery in January fell 67 cents to 90.54 dollars a barrel in London trade.

New York's main contract, light sweet crude for January, lost 97 cents to 87.31 dollars.

The dollar rallied strongly against the euro as the single currency was spooked by news that Moody's rating agency had placed Spain on review for a possible downgrade, refocusing attention on the eurozone debt crisis.

The euro plunged as low as 1.3286 dollars, compared with 1.3375 dollars late in New York on Tuesday.

A stronger dollar makes oil more expensive for buyers holding other currencies, denting demand.

The US Department of Energy will release later Wednesday its weekly figures on oil stocks, which analysts expect to show a sharp drop in crude reserves mainly due to cold weather that has hit the country's northeast.

The US Federal Reserve's decision on Tuesday to maintain record-low interest rates and its massive asset purchasing policy had a limited impact on the oil market, analysts said.

An expected drop in US energy reserves, regarded as an indicator that demand has improved, should cap the decline in oil prices, analysts said.

And a cold spell in the northern hemisphere and OPEC's recent decision to keep output levels should support to prices in the long term, they added.

"Oil prices look firm at current levels supported by strong demand, the OPEC meeting outcome, cold weather and inventory dynamics," Barclays Capital analysts said in a report.

"Moreover, with OPEC producers showing little intent at dampening prices at current levels, rather expressing surprising ease with current proceedings, the downside from current levels appears minimal to us."

Elsewhere on Wednesday, Ghana began production from one of the largest recent oil discoveries in West Africa, transforming it into a significant oil producer.

The Jubilee field was discovered in 2007 by US firm Kosmos and is estimated to contain some 1.8 billion barrels, one of the largest finds in West Africa in recent years.

Anglo-Irish firm Tullow says it will produce about 55,000 barrels a day within the first few months before more than doubling output to 120,000 bpd.

© 2010 AFP

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