Oil prices drop further on strong dollar

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Oil prices fell Monday after the euro briefly dived to a near seven-week low point against the dollar over the eurozone debt crisis and after the arrest of IMF head Dominique Strauss Kahn, traders said.

New York's main contract, light sweet crude for June, or West Texas Intermediate (WTI), slid $1.15 to $98.50 a barrel.

Brent North Sea crude for delivery in June dropped 49 cents to $113.34 in late London deals, pulling back from losses of more than a dollar earlier in the day. Despite falling, crude futures remain at historically high levels.

The euro slumped Monday to $1.4048, hitting the lowest point since March 29. It later recovered to $1.4216, higher than Friday's close.

A stronger greenback makes dollar-denominated commodities more expensive for buyers using weaker currencies. That tends to weigh on demand and spark lower prices.

"Safe-haven demand for the dollar is.. hitting commodity prices," said Commerzbank Carsten Fritsch.

"The firmer dollar, which is benefiting increasingly from mounting concerns about the future of the eurozone, is the main source of pressure here.

"The arrest of IMF head Strauss-Kahn shortly before today's meeting of the eurozone finance ministers has made speedy approval of a new aid package for Greece less likely," he added.

The arrest of the IMF chief threw a giant cloud over Monday's meeting of EU finance ministers to approve a rescue for Portugal, fight new debt fires in Greece and name a new president for the ECB.

International Monetary Fund managing director Strauss-Kahn, pivotal in global efforts to tame Europe's debt crisis amid fears it could unleash new financial market contagion, had been due at the Brussels talks.

Instead, a New York judge denied him bail despite an offer from his defence team to put up $1 million in cash and surrender all his travel documents.

The judge ordered the IMF chief detained, two days after he was pulled off a plane and accused of trying to rape a Manhattan hotel chambermaid.

In Brussels, the assembled finance ministers backed an EU-IMF bailout of Portugal amounting to 78 billion euros ($110 billion), while Greece moved closer to securing better bailout terms.

Oil prices sank last week on the back of mounting concerns that high price levels could erode energy demand.

The International Energy Agency last week cut its outlook for 2011 global oil demand growth by 190,000 barrels per day because of high oil prices and weaker recovery in rich countries.

© 2011 AFP

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