Oil near $76 a barrel in European trade as demand fears trump support from weaker dollar

Oil near $76 as demand fears trump weaker dollar

Oil prices dipped below $76 a barrel Monday as lingering doubts over the global economic recovery and its effects on demand trumped bullish factors like the weaker U.S. dollar and the hijacking of an oil tanker off the coast of Somalia.

By mid-afternoon in Europe, benchmark crude for January delivery was down 10 cents to $75.95 in electronic trading on the New York Mercantile Exchange. Earlier in the session, prices peaked at $76.85. On Friday, the contract fell $1.91 to settle at $76.05.

Analysts warned that despite talk about the end of the recession and recovering markets, the level of global demand for oil was still uncertain.

“The actual improvement in oil demand so far has been fairly minimal,” said Peter Stewart at KBC Market Services in Britain. “The market has responded … to the anticipation of the recovery impacting oil demand rather than actually delivered oil demand.”

Markets remained jittery about the fallout from Dubai’s debt problems, which had sent markets lower at the end of last week.

News that Dubai’s investment arm, Dubai World, could default on $60 billion in debt sent world markets and made investors fret about another financial crisis.

The United Arab Emirates central bank took steps to avert any run on banks by panicked depositors, pledging Sunday to offer additional money to foreign and domestic banks in the emirates amid concerns that UAE banks have some of the biggest exposure to Dubai World’s debts.

The promise of cheap funds signaled to global investors that the country’s federal government — backed by oil money — will do what it can to limit the fallout from the indebted Dubai emirate. Dubai World has sought a six-month reprieve until May on paying its bills.

Worries lingered about other countries with similar large debts that could trigger another financial crisis, but this is likely to also prompt central banks worldwide to maintain ample liquidity and keep interest rates low, said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

“The long-term prospect for commodities including oil looks strong amid expectations that the value of the dollar will remain weak,” he said, predicting oil to remain within a tight trading range of the mid $70s to the low $80s.

Oil prices usually climb when the dollar falls, as dollar-denominated commodities such as oil and gold become cheaper to investors holding other currencies. But on Monday, the weaker dollar’s effect on oil prices seemed subdued.

The euro was up to $1.5026 in afternoon European trade, compared with $1.4954 late Friday in New York, while the dollar was lower at 86.30 Japanese yen from 86.70 yen.

“The dollar is significant in the long term but there are days when the economic fundamentals reassert themselves as the main direction of the market,” said KBC’s Stewart.

In news usually deemed bullish for oil prices, Somali pirates on Sunday seized a tanker carrying crude oil from Saudi Arabia to the United States in waters off East Africa. The Greek-owned Maran Centaurus was hijacked about 800 miles (1,300 kilometers) off the coast of Somalia.

In other Nymex trading, heating oil for December delivery added 0.39 cents to $1.9661 a gallon, December gasoline added 2.04 cents to $1.9466 a gallon but natural gas shed 15.9 cents to $5.033 per 1,000 cubic feet.

In London, Brent crude for January delivery fell 4 cents to $77.14 on the ICE Futures exchange.

Associated Press writer Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.