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11.12.2007 Business & Finance

Oil Prices Ease Lightly

Crude oil prices eased near $88 a barrel yesterday, pressured by expectations that the U.S. Federal Reserve will make only a modest cut in interest rates this week that could be supportive for the U.S. dollar.

U.S. crude was down by 12 cents a barrel to $88.16. London Brent crude fell by 25 cents to $88.39 a barrel.
Better-than-expected U.S. employment data on Friday reduced the likelihood of an aggressive 50 basis point interest rate cut by the Federal Reserve on Tuesday, buoying the dollar.

Markets are now pricing in a quarter-point cut, a factor that helped support the dollar near a one-month high against the yen on Monday.

A weaker dollar makes most commodities cheaper to buy for non-dollar investors and weakness in the U.S. currency has helped to boost oil prices to record highs this year.

Oil fell to six-week lows last week after coming close to breaking the $100 mark in November, boosted by the weak dollar, concerns over falling supplies ahead of winter and speculative inflows.

But the market has been moving sideways since the Organisation of the Petroleum Exporting Countries (OPEC) last week agreed to leave its output levels unchanged.

"OPEC rolled over quotas as we expected; this was constructive, as OPEC demonstrated its intent to continue to tightly manage its crude supply," Mike Wittner, oil analyst at Societe Generale said in a research note.

"However, macro concerns about weakening economic and oil demand growth in the U.S. and elsewhere in the OECD concerns that are shared by OPEC and the broader oil markets offset the rollover and weighed on prices."

Some energy experts have said OPEC's output levels are not enough to stem sliding crude inventories and could trigger a crunch when heating demand peaks this winter.

Stockpiles of crude oil in top oil consumer, the United States, for example, dropped last week to their lowest since early 2005.

Market speculators have pared their bullish bets as oil prices fall further from their record high of $99.29 on November 21 and as the end of the year approaches.

Non-commercial investors cut their net long positions in the New York Mercantile Exchange (NYMEX) crude oil futures contract by 12,000 lots to 47,072 lots in the week to December 4.

— Reuters