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SINGAPORE - Oil slid below US$88 a barrel yesterday, extending losses on expectations that a modest Federal Reserve interest rate cut would support the ailing dollar.
US light, sweet crude futures fell 47c a barrel to US$87.81 in Globex electronic trading, extending Friday's nearly US$2 drop. Prices ended 37c lower on the week, but traded in a wide range of about US$5.
London Brent crude fell 19c to US$88.45 a barrel.
"The fall in the oil price appeared to be more of a continuation of the choppy trading pattern of recent days rather than the result of significant oil market news," said Commonwealth Bank of Australia analyst David Moore.
Better-than-expected US employment data on Friday (US time) reduced the likelihood of an aggressive 50 basis point interest rate cut by the Federal Reserve tomorrow, buoying the dollar, which has traded inversely with oil of late, traders said.
Instead markets are now pricing in a quarter-point cut, a factor that helped support the dollar near a one-month high against the yen. A weaker dollar makes most commodities cheaper to buy for non-dollar investors.
China moved aggressively at the weekend to curb inflation and prevent the economy from overheating by raising its bank reserve ratio by a full percentage point to a record 14.5 per cent - its biggest such move in nearly four years.
After Opec's decision last week to leave production levels unchanged for the moment, many analysts expected more range-bound trade to prevail heading toward the holiday season.
Some energy experts have said Opec's output levels are not enough to stem sliding crude inventories and could trigger a crunch when heating demand peaks this winter.
US stockpiles of crude oil dropped last week to their lowest since early 2005. But inventories of refined fuel rose during the same week thanks to higher imports and a boost in domestic production.
- Reuters
