Oil rebounds on dollar weakness

By PABLO GORONDI

updated 9:32 a.m. ET Sept. 5, 2008

Oil prices slipped Friday but recovered from earlier lows as the dollar weakened against the euro and unemployment data deflated hopes of a late-year economic recovery in the United States.

By afternoon in Europe, light, sweet crude for October delivery was down 8 cents to $107.81 a barrel in electronic trading on the New York Mercantile Exchange. Earlier Friday, a stronger dollar helped push prices down to $105.76.

The contract had fallen $1.46 to settle at $107.89 on Thursday.

Data from the U.S. Labor Department showed the American economy losing jobs for the eighth straight month in August and at a faster-than-expected pace, with the unemployment rate rising to 6.1 percent from 5.7 percent in July. Analysts were forecasting a rate of 5.8 percent for August.

Investors also were awaiting to see if OPEC moves to restrict output next week amid a two-month plunge in prices.

"We're definitely in a short-term bearish trend," said Gavin Went, head of mining and resources at research firm Fat Prophets in Sydney. "With prices falling so rapidly, I think OPEC would like to protect that $100 price barrier."

The Organization of the Petroleum Exporting Countries is scheduled to meet early next week in Vienna and has indicated it may take action to defend the $100-a-barrel level.

Crude has fallen nearly $40, or 27 percent, since surging to a record $147.27 a barrel on July 11.

The dollar, which was stronger against the euro early Friday, lost some of it's gains as the jobless data was released.

A falling dollar spurs investors to shift funds to commodities like oil and precious metals, traditionally bought as hedges against inflation and dollar weakness.

The euro was slightly lower Friday at $1.4286, but up from $1.4227 earlier in the session. The dollar also weakened against the yen, falling below 107 yen.

Still, the dollar has strengthened against most other major currencies over the past weeks.

"In the current trend of the Dollar Index, it is becoming harder and harder to see (crude oil) rising back to previous record highs," said Olivier Jakob of Petromatrix in Switzerland.

A weekly U.S. oil inventory report released Thursday was mixed. The Energy Department's EIA said U.S. gasoline stocks fell by 1 million barrels to 194.4 million barrels for the week ending Aug. 29, less than the 1.8 million-barrel drop analysts surveyed by energy research firm had Platts expected.

The EIA also said U.S. crude stocks tumbled unexpectedly last week. Crude supplies dropped by 1.9 million barrels to 303.9 million barrels; analysts had expected supplies to increase by 500,000 barrels.

Meanwhile, inventories of distillate fuel, which include diesel and heating oil, fell by 400,000 barrels to 131.7 million barrels. Analysts expected stocks to rise by 1.1 million barrels.

In other Nymex trading, heating oil futures fell 2.13 cents to $3.0024 a gallon, while gasoline prices dropped 1.3 cents to $2.7274 a gallon. Natural gas for October delivery rose 12.5 cents to $7.447 per 1,000 cubic feet.

In London, October Brent crude lost 66 cents to $105.64 a barrel on the ICE Futures exchange.

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Associated Press Writer Alex Kennedy in Singapore and Joe Bel Bruno in New York contributed to this report.