US oil prices slipped on Monday as a stronger dollar and the euro's weakness amid renewed eurozone debt concerns helped pull oil from a two-year peak above $87 a barrel. The euro fell as investors fretted anew about budget problems in Ireland and other eurozone weak links. Last week's better-than-expected US jobs data also prompted dollar purchases, strengthening the dollar index measuring the greenback against a basket of currencies.
The dollar fell to a 9-1/2 month low against the euro after last week's Federal Reserve announcement that the central bank would buy $600 billion of Treasuries by mid-2011 to lower interest rates and reinvigorate a sluggish economy. US crude for December delivery fell 30 cents to $86.55 a barrel at 11:54 am EST (1654 GMT), off its earlier $87.49 intraday peak, the highest price since $89.82 was struck on October 9, 2008.
Monday's pull back by oil stalled at Friday's $85.96 low, a broker noted. US crude prices on Friday marked five straight higher settlements and posted a 6.6 percent gain for the week, the biggest percentage gain since the week to February 19. ICE December Brent crude fell 11 cents to $88 a barrel.
"After the strong surge in risk appetite last week, it seems like reality and profit-taking are kicking in today. Global equities are in the red, and oil is slightly lower but still close to a two-year high," Danske Market analysts wrote in a note to clients. Current anxiety over eurozone debt focused mainly on Ireland. The cost of protecting Irish government debt against default rose on Monday, as did equivalent insurance for Spain.
The Dow and S&P 500 fell on Monday after hitting two-year highs last week as a stronger dollar weighed on the market although the tail winds of monetary easing and signs of a stronger economy limit losses. "Following the common pattern of recent weeks, crude fell off from two-year highs as the US dollar strengthened," J.P. Morgan's commodities team said in a research note on Monday.
J.P. Morgan's note also said the bank expects strength in Asia to drive prices higher going forward. The dollar's recent slide has concerned producers as the value of greenbacks received for dollar-denominated oil diminished even as prices for other commodities bought by Opec producing countries, such as grains, were on the rise.
Libya's top oil official and an delegate from one of Opec's Gulf members said on Monday they saw no need for Opec to boost output targets at its December meeting. "While the price is inching up, we think the terms of trade are going against Opec countries and the increase in the price did not even compensate for the loss in the dollar value and the increase in the price of commodities," said Shokri Ghanem, chairman of Libya's National Oil Corporation.
Qatari Oil Minister Abdullah al-Attiyah said on Monday that the oil market was stable and that countries would have to live with higher prices. "I think the market is very stable, but we are seeing high inventories in other countries," he told reporters on the sidelines of an industry event in Doha.
Last week he said that $70 to $90 per barrel was very reasonable for consumers and producers, echoing a similar comment about that price range from Saudi Oil Minister Ali al-Naimi. The International Monetary Fund also voiced a lack of concern about higher oil prices. A senior official on Saturday said the IMF does not see a rise in oil prices as a threat to the global economic recovery.
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