Some relief for oil prices, but gas prices go ever higher

Source: Agencies  |   2008-6-10  |     ONLINE EDITION

OIL prices dropped today on a stronger dollar and a call from Saudi Arabia for a meeting to talk about prices it called unjustifiably high.

The dollar improved against the euro after Treasury Secretary Henry Paulson said he would not rule out intervention to stabilize the US currency. That provided some relief for oil, which is priced in dollars, after a record run-up on Friday.

Saudi Arabia called for a meeting of oil-producing countries. A Saudi minister said the kingdom would work with OPEC to "guarantee the availability of oil supplies now and in the future." He also said the current price of oil is unjustified.

July futures for light, sweet crude fell US$4.19 to settle at US$134.35 a barrel in volatile trading on the New York Mercantile Exchange. On Friday, oil jumped nearly US$11, a single-day record.

Last week, oil prices rose nearly 14 percent in two days, trading as high as US$139.12 a barrel, after slumping more than US$13 from a previous record high.

The sharp jump last week began Thursday, after European Central Bank President Jean-Claude Trichet suggested the bank could increase interest rates in July to counter rising inflation. That sent the dollar falling against the euro.

In an interview on CNBC yesterday, Paulson said he would not rule out the possibility of intervening to stabilize the dollar, though he declined to speculate about what the government might do. The dollar strengthened against the euro on Paulson's comments, sending oil lower.

Many investors buy commodities such as oil as a hedge against inflation when the greenback weakens. But yesterday, the effect reversed. The dollar gained ground, making oil less effective as an inflation hedge. Also, a stronger dollar makes oil more expensive to investors overseas.

One of the factors that underpinned Friday's rally was an Israeli cabinet minister's comment that his nation might attack Iran if it didn't halt its nuclear program.