Oil prices drop to US$126 a barrel

30-May-08

Despite a larger than expected drop in US crude oil stocks- contrary to a gain of 750,000 barrels, oil prices have dropped to US$126 a barrel on Friday in Asia, extending a decline of over four dollars in the previous session. A US$4.41 drop settled prices at US$126.62 a barrel yesterday. This was the lowest settlement in two weeks and the biggest single-day price drop since March 19. Delays in unloading oil tankers along the Gulf Coast have led to an 8.8 mln barrel drop in crude oil inventories for last week. In an overnight move, the US dollar has hit a three-month high against the yen. In Investors who buy commodities such as oil as a hedge against inflation when the dollar is falling, tend to sell when the dollar gains strength. Also, a stronger dollar makes oil more expensive to investors dealing in foreign currencies. The Commodity Futures Trading Commission, has, for six months now, been in the process of conducting a wide-ranging investigation of the US oil markets, with a focus on possible price manipulation. Disclosure of the investigation may have contributed to oil prices decline. A few initiatives have been designed to increase transparency of the energy futures markets.