Oil Prices Drop as Dollar Strengthens

June 12, 2008 7:21:07 AM PDT
Oil prices fell sharply Thursday as the dollar moved higher and forced crude to lose some of its appeal as a hedge against inflation. Gas prices reached another record at the pump, rising to a national average of $4.06 a gallon. Light, sweet crude for July delivery fell $3.47 to $132.91 a barrel on the New York Mercantile Exchange.

The dollar gained ground after the Commerce Department said retail sales rose in May by the biggest amount in six months as 57 million tax rebate checks reached consumers. The 15-nation euro fell to $1.5415, from $1.5571 late Wednesday.

Investors who bought commodities such as oil to protect against inflation when the dollar was falling tend to sell when the greenback gains ground. Also, a stronger dollar makes oil more expensive to investors overseas.

The dollar's protracted decline has been a major factor behind the doubling of oil prices over the past year. In recent days, oil prices have followed the dollar closely, spiked sharply higher, or lower, depending on the greenback's moves.

At the pump, meanwhile, gas prices rose 0.8 cent overnight to a new record national average of $4.06 a gallon, according to AAA and the Oil Price Information Service. Gas prices are following crude oil, which surged more than $16 last week. Prices are likely to keep rising as long as oil futures remain high.