LONDON: Oil steadied around $73 per barrel on Friday, consolidating after its biggest one-day fall since July, and as the dollar hit a seven-month high against a basket of currencies.
Traders said the stronger dollar, which tends to move inversely to many commodities because they are priced in the US currency, worries about the health of the euro zone and weaker equities were a powerfully negative combination for oil.
But the market gained some support from oil-focused hedge fund BlueGold, which denied what it said were false rumors about its continuing operations and said it was not behind a sharp rise in volatility in recent days.
Rumors over the health of an unidentified hedge fund were cited as a negative factor on Thursday as the oil market fell.
US crude oil for March delivery was up 30 cents at $73.44 per barrel by 1154 GMT. On Thursday, it touched a 2010 intraday low of $72.42 and closed down 5 percent. London ICE Brent for March was up 6 cents at $72.19.
The market has steadied after yesterday s move, said Tony Machacek, broker at Bache Commodities in London. But there is general concern about the economic outlook and the dollar.
Carsten Fritsch, analyst at Commerzbank in Frankfurt, said oil and commodities markets faced a toxic mix of factors including falling stock markets and rising risk aversion.
Bearish sentiment prevails across all commodities. The pessimism is very strong. Anything at all risky is being sold.
The dollar index, a measure of the greenback s performance against six major currencies, leapt as concern deepened about worsening fiscal problems in south European countries. A stronger US dollar makes commodities, like oil, more expensive for those holding alternative currencies.
Sentiment Fragile
Sentiment was fragile ahead of key US non-farm payrolls numbers due at 1330 GMT, which could show unemployment continuing to rise in the world s largest economy, especially after an unexpected increase in jobless claims.
European shares hit 10-week lows on Friday after hefty falls the previous day, with growing worries about sovereign debt in the euro zone and anxiety ahead of key US jobs data.
The euro hit its weakest level against the dollar in more than eight months on Friday as traders dumped the single European currency due to festering concerns about the fiscal health of some euro zone countries.
Oil fell 5 percent on Thursday, its steepest daily drop since July and the fifth-largest trading volumes ever on the New York Mercantile Exchange (NYMEX) as investors dumped risky assets. Rising US unemployment claims and fear that debt-laden European economies may falter exacerbated the selling.
Oil is now about 50 percent of its record above $147 in July 2008, down from a 15-month high close at $84 on Jan. 11.
Dealers said on Thursday they suspected the oil sell-off was also linked to a hedge fund unloading a big oil position.
A sudden rush of volume in front-month NYMEX crude oil futures trading during the final moments of open-outcry trading on Wednesday was followed on Thursday by the fifth-highest trading volume on record for the contract at nearly 500,000 lots.
But the statement from BlueGold went some way to calm nerves that traders said had been frayed by the extreme volatility.
BlueGold Chief Executive Officer Dennis Crema told Reuters he utterly and completely denied his company was in any way responsible for the recent volatility in crude oil prices.
We … deny any false rumours surrounding BlueGold s continuing operations, he added. Business continues as usual.
