Oil falls below $71 as US dollar strengthens

Oil prices fell below $71 a barrel Monday in Asia as a three-month rally lost steam amid a strengthening dollar.

Benchmark crude for July delivery fell $1.32 to $70.72 a barrel by late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. On Friday, it fell 64 cents to settle at $72.04.

Oil prices have more than doubled since March in part on expectations that massive U.S. fiscal and monetary stimulus will hasten a decline of the dollar. Investors often buy crude and other commodities as a hedge against the possibility of inflation.

The euro weakened to $1.3879 on Monday from $1.4015 on Friday.

Traders are also wary that the recent price run-up isn’t supported by improving supply and demand fundamentals.

“There’s more talk in the market of expectations of a pullback in oil,” said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore. “It’s rallied too much in too short a period of time.”

“Oil is still very strong given the weak overall fundamentals,” he said.

On Friday, the Organization of Petroleum Exporting Countries dropped its daily demand forecast for 2009 by 230,000 barrels, estimating that global consumption would shrink to 83.8 million barrels a day.

Nigerian militants said Saturday they had

sabotaged a pipeline, run by Chevron Corp.’s local subsidiary, in the restive southern Niger Delta region.

Violence has been escalating in the region as the military intensifies operations to flush out rebels battling for a larger share of the country’s oil revenues.

In other Nymex trading, gasoline for July delivery fell 2.14 cents to $2.02 a gallon and heating oil dropped 1.83 cents to $1.82. Natural gas for July delivery slid 1.8 cents to $3.84 per 1,000 cubic feet.

In London, Brent prices fell $1.01 to $69.91 a barrel on the ICE Futures exchange.

By ALEX KENNEDY
SINGAPORE