Crude-oil futures retreated by more than $4 a barrel Thursday, as the dollar strengthened after a report showing better-than-expected consumer spending.
The front-month July light, sweet, crude contract on the New York Mercantile Exchange was trading $3.97 lower at $132.41 a barrel, recovering slightly from a $131.55-a-barrel intraday low.
According to Commerce Department data, U.S. retail sales rose 1.0% in May, double the rate expected, signaling consumers are spending economic stimulus payments and that the economy might not be as weak as feared.
The euro slipped against the dollar, trading at $1.5414 from $1.5557 late Wednesday.
"That's the main factor really, there hasn't been a lot of overnight news," said Andy Lebow, senior vice president for energy at brokerage MF Global. "This has been one of the powerful trends in the market. As the dollar weakened, commodity prices have strengthened, and as the dollar strengthened, commodity prices weakened."
Starting last summer, oil prices and the dollar's relative value seemed to work in tandem, with moves down by the greenback accompanied by new record highs for crude. A weaker dollar allows buyers using stronger foreign currencies to bid up prices. In addition, a weak dollar is considered to be a harbinger of inflation as imports to the U.S. become more expensive, leading many investors to turn to oil as a hedge against broadbased price rises.
The relationship between oil and the dollar isn't consistent, however, as the two had decoupled for about a month before the trading strategy returned last week, driving oil futures to all-time intraday highs past $139 a barrel on the Nymex.
Oil prices now are bound in a range between $130 and $140, caught between worries about limited global crude supplies and signs that demand is weakening in the face of record prices.
"Until we break out of that range, we're going to see some wild gyration back and forth," said Addison Armstrong, director of market research at Tradition Energy. "We're getting buffeted by the dollar one day and down the next. Until we see some definitive move on the dollar we're stuck."
Overnight U.K. Prime Minister Gordon Brown confirmed he will travel to Jeddah, Saudi Arabia to attend meeting convened by the Saudis to bring big oil consumers and producers together. The meeting, scheduled for June 22, is at the head-of-state level, and will give participants a chance to address high oil prices blamed for crippling global growth. Saudi Arabia is the largest producer within the Organization of Petroleum Exporting Countries.
"There's not much that OPEC can do," said Mr. Armstrong. "In the near term, we have a very difficult supply and demand situation that has to be worked out."
Market participants don't expect OPEC member nations to make any decisions on output at the meeting. OPEC has said it believes financial speculators such as hedge funds are behind crude's scorching run past $100 a barrel.
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