Oil falls as the dollar strengthens

May 13, 2011 - 11:13 AM

Oil fell on Friday as the dollar rose and concerns eased that refinery operations could be disrupted by Mississippi River flooding.

Benchmark crude for June delivery lost $1.67 at $97.30 per barrel in midday trading on the New York Mercantile Exchange after topping $100 a barrel earlier in the day. Oil has been volatile this week, ranging from $95 to $104 a barrel.

Meanwhile, drivers are paying about the same for gasoline as a week ago, with the national average at $3.982 a gallon, according to AAA, Wright Express and the Oil Price Information Service. Motorists in 15 states and the District of Columbia pay more than $4 a gallon. The price is 17.4 cents more than it was a month ago and $1.092 more than a year ago.

Many analysts think pump prices will fall to around $3.50 a gallon or less by Memorial Day, as refineries sidelined by maintenance and temporary outages produce more gas and oil prices retreat.

In Gulf Coast states most refineries don't expect to be affected by flooding from the Mississippi River, although some have lined their facilities with sandbags and moved equipment as a precaution. There are concerns that crude oil shipments and commercial traffic could be slowed by high water, according to PFGBest analyst Phil Flynn.

"The market is still looking at that but with a lot less trepidation than it did earlier this week," he said.

Traders have shifted their focus in the past two days from supply-and-demand issues toward market basics such as the movement of the dollar, which was stronger Friday against the euro and other currencies. Since oil is priced in dollars, a stronger dollar makes oil less of a bargain for buyers who use other currencies and the price falls.

In the U.S., the Labor Department reported that inflation in April rose to the highest level in two years as consumers paid more for gas and food products. Inflationary pressure began to ease in May as prices for oil, corn, wheat and other commodities declined.

In other Nymex trading in June contracts, heating oil fell 2 cents to $2.8910 per gallon, gasoline futures were virtually unchanged at $3.0610 a gallon and natural gas fell 3 cents to $4.222 per 1,000 cubic feet.

In London, Brent crude fell 50 cents to $112.48 per barrel on the ICE Futures exchange.