Oil fell more than $1 to below $78 a barrel today, pushed by the stronger dollar after the US Federal Reserve raised an emergency lending rate and damped by higher-than-expected crude inventories in the United States.
The Fed's move to increase the discount rate to 0.75 per cent from 0.50 per cent, citing improvement in financial market conditions, also drove down US stock futures, gold and other commodities.
US crude for March delivery fell $1.11 to $77.95 a barrel. It had settled at $79.06 the previous day, the highest settlement since January 14th. London Brent crude for April lost $1.05 to $76.73 a barrel.
The US dollar rose to a nine-month high against the euro, while the dollar index, a gauge of its performance against six major currencies, rose to its highest level in eight months above 81.250, up about 1 per cent.
The stronger dollar makes oil and other commodities more costly for holders of other currencies.
Data released yesterday by the Energy Information Administration (EIA) showed that crude stocks rose 3.1 million barrels -- versus forecasts for a 2.2 million-barrel build -- to 334.5 million barrels in the week ended February 12th.
Gasoline stocks were up 1.7 million barrels, but distillates fell 2.9 million barrels.
Heating oil and gasoline futures also trimmed their gains as crude futures retreated from the day's high on Thursday. The number of US workers filing new applications for unemployment insurance unexpectedly surged last week, while producer prices increased sharply in January, raising potential hurdles for the economic recovery.
Initial claims for state jobless benefits increased 31,000 to 473,000, the Labor Department said on Thursday, and the economy has lost 8.4 million jobs since recession struck in December 2007.
However, oil could find some support from workers' strike at six refineries owned by French giant Total, while concerns over Iran's nuclear programme could also boost sentiment.
The UN nuclear watchdog said on Thursday it feared Iran may now be working to develop a nuclear-armed missile, as Washington warned Tehran of "consequences" for ignoring international demands to stop its atomic plan. Tehran says the programme is for electricity generation.
Reuters