[OIL PRICES] Crude Oil Falls to Two Week Low on Bernanke Currency Comments

Crude oil fell to a two-week low on signs that the U.S. will stop cutting interest rates to bolster the dollar after Federal Reserve Chairman Ben S. Bernanke said he was ``attentive'' to the impact of the weak currency.

Energy and metals dropped after Bernanke said the Federal Reserve is working with the Treasury to ``carefully monitor developments in foreign-exchange markets'' and is aware of the effect of the dollar's decline on inflation. The falling dollar has helped lead commodities including oil, gold and corn to records this year.

``Bernanke is finally acknowledging that the weak dollar is a problem,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``If steps are taken to strengthen it we could see the commodity markets turn sharply lower. The first thing to do to support the dollar is to stop cutting interest rates.''

Crude oil for July delivery fell $3.51, or 2.8 percent, to $124.25 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Oil touched $123.90, the lowest since May 15. Futures reached a record $135.09 a barrel on May 22. Prices are up 91 percent from a year ago.

The U.S. currency rose 0.5 percent to $1.5459 per euro at 2:32 p.m. in New York, compared with $1.5537 yesterday. It touched $1.5411, the strongest since May 14.

``The rapid growth in the emerging markets and the associated sharp rise in their demand for raw materials have been, together with a variety of constraints on supply, a major cause of the escalation in the relative prices of oil and other commodities,'' Bernanke said in a speech to the International Monetary Conference in Barcelona, Spain.

Oil Price `Bubble'
Billionaire investor George Soros told Congress an oil price ``bubble'' is working with fundamentals in the market that may lead to a recession in the world's largest economy.

``The rise in oil prices aggravates the prospects for a recession,'' Soros said in testimony prepared for delivery today to the Senate Committee on Commerce, Science, and Transportation. ``The bubble is superimposed on an upward trend in oil prices that has a strong foundation in reality,'' he said. ``To be sure, a crash in the oil market is not imminent.''

The committee is holding hearings on potential energy price manipulation. Congressional leaders are pushing the Commodity Futures Trading Commission and other agencies to step up efforts at overseeing the markets for fuels such as gasoline as retail prices are forcing consumers to drive less.

Prices also fell on signs U.S. fuel supplies rose last week and speculation that U.S. and Asian demand will decline. U.S. consumption in the week ended May 23 was lower than a year earlier, the Energy Department said last week.

Ending Price Controls
Malaysia will end price controls on gasoline, a minister said today. Indonesia, Taiwan, Sri Lanka and Pakistan have decided to raise fuel prices as the cost of subsidies mounts.

``The fuel supply and demand numbers will be the focus in tomorrow's report,'' said Kyle Cooper, director of research at IAF Advisors in Houston. ``If gasoline and distillate supplies increase by 2 or 3 million barrels, we should move a lot lower.''

Gasoline stockpiles probably increased 825,000 barrels from 206.2 million barrels the prior week, according to the median of 14 responses in a survey of analysts by Bloomberg News. Supplies of distillate fuel, a category that includes heating oil and diesel, probably increased 1.68 million barrels.

The Energy Department is scheduled to release its weekly report on inventories tomorrow at 10:35 a.m. in Washington.

Brent crude oil for July settlement declined $3.52, or 2.8 percent, to $124.50 a barrel on London's ICE Futures Europe exchange. It touched $124.18, the lowest since May 19. The contract reached a record $135.14 on May 22.

Plant Closures
General Motors Corp. said today that it will close four truck plants, make more small cars, and may drop its Hummer brand of large sport-utility vehicles.

Gasoline exceeding $4 a gallon represents ``a structural change, not just a cyclical change,'' Rick Wagoner, chief executive officer of the largest U.S. automaker, told reporters today before its shareholders' meeting in Wilmington, Delaware.

Iranian President Mahmoud Ahmadinejad said oil prices have been artificially inflated by ``capitalists'' and that crude oil remains plentiful. Iran is the second-biggest oil producer in the Organization of Petroleum Exporting Countries.

``While the growth of consumption is lower than that of production and the market is full of oil, prices are constantly on the rise and this situation is completely artificial and imposed,'' Ahmadinejad said today at the World Food Security conference in Rome.

Organization of Petroleum Exporting Countries is prepared to boost oil supplies should the market require it, Kuwaiti Oil Minister Mohammed al-Olaim said in remarks published by state news agency KUNA. Mohammed al-Olaim also said that the soaring cost of oil is unrelated to market fundamentals of supply and demand. Organization of Petroleum Exporting Countries supplies about 40 percent of the world's oil.

Source: Bloomberg|by Mark Shenk

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