Oil prices have slipped by over one dollar on concerns that a flaying US economy will cause oil demand to soften. Light, sweet crude for May delivery fell to US$100.03 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore.
Beginning last week, crude futures started dropping after the US Federal Reserve-backed sale of Bear Stearns Cos. to JP Morgan Chase & Co. created fears of deeper economic problems. Most investors expect the Federal Reserve to cut interest rates several more times this year, putting added pressure on the dollar. Lower interest rates tend to weaken the dollar, driving investors to commodities such as oil that they view as a hedge against inflation. A lower dollar also makes oil less expensive to overseas investors, a trend that reverses when the dollar strengthens.
On one hand, economic troubles in the US will coninue to pressure prices, while on the other hand, as long as the US dollar remains weak, support will continue oil prices as commodities like oil and gold as these are seen as a hedge against the falling dollar.