Oil falls below US$82

Fairfax Media

OIL PRICES: After a two-day rally the price of oil has dropped.

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Oil dipped below US$82 a barrel on Thursday after a two-day rally, as the US dollar strengthened against the euro and Opec did not take strong steps to tighten supplies above its official output cap.

US crude oil futures fell US$1.03 cents to US$81.90 a barrel by 1655 GMT. ICE Brent crude lost 79 cents to US$81.17.

Prices rose more than US$3 in the previous two days due to larger-than-expected decreases in fuel inventories in the United States and strong US gasoline demand, which rose to a record high for the month of February.

"The petroleum markets look like they may be taking a rest after pressing higher over the prior two sessions, as a pause in the equity and currency markets may be due as well," Tim Evans, analyst at Citi Futures Perspective, says in report.

"At some point we think the market will need to consider whether the underlying fundamentals truly support this market, including whether an Opec status-quo that may permit a further gradual uptrend in output is really consistent with rising prices, particularly as we move into the second quarter where a global supply/demand is projected," he added.

Ministers from the Organisation of the Petroleum Exporting Countries (Opec) agreed on Wednesday to maintain the official existing cuts of 4.2 million barrels per day. But some member countries have been pumping oil above their output targets.

Opec's Secretary General said the group did not push member countries about the compliance too much at the meeting and the oil minister of Saudi Arabia, its largest producer, said he was "very happy" with "beautiful prices."

The group is even likely to continue to leave its oil output quotas unchanged at its next meeting in October, Kuwaiti Oil Minister Sheikh Ahmad al-Abdullah al-Sabah told Reuters on Thursday.

On the foreign exchange market, the dollar gained against the euro as the single currency was hit by a report saying Greece is not hopeful of receiving aid from euro zone members, adding to uncertainty over a resolution to its debt problems.

The stronger dollar pressures oili and commodity prices by making them more expensive for users of other currencies.

European shares edged up after hitting 17 month closing highs on Wednesday, while US stocks were nearly flat.

- Reuters