LONDON: Brent crude oil dipped below $124 a barrel on Tuesday as the dollar rose from a three-year low and traders weighed the impact on the market of Al-Qaeda leader Osama bin Laden’s death.
The dollar index, which tracks the dollar against a basket of major currencies, was up 0.39 percent but still not far from a near three-year low.
"Prices are still down, and that’s probably because the dollar strengthening is weighing on prices," said Serene Lim, a commodities analyst with ANZ Bank in Singapore.
Brent crude for June was down $1.45 to $123.67 a barrel by 1155 GMT, extended a fall on Monday after US forces killed bin Laden in Pakistan. US crude lost $1.09 to $112.43. Brent had earlier dipped to $123.51.
Analysts said the potential for retaliatory attacks and turmoil in the Middle East following the death could bolster the market.
"The risk premium could even rise again if acts of revenge follow," said analysts at Commerzbank in a report. "As long as the unrest continues in Arab countries, the price of oil should not fall significantly in any case."
Michael Hewson, an analyst at CMC Markets, also said the dip would prove short-lived. "To my mind (the death of bin Laden) changes nothing about geo-political risk in the Middle East. If anything, it makes a terror attack more likely, not less as his supporters will want to carry out a revenge attack."
The United States issued security warnings to Americans worldwide, while CIA Director Leon Panetta said al Qaeda would "almost certainly" try to avenge bin Laden’s death.
Olivier Jakob, an oil analyst at Petromatrix, added that the death of bin Laden didn’t change anything with regard to prompt supply and demand. Supply fears have kept the oil price elevated, trading between $120-$126 over the last two weeks.
According to a Reuters survey, OPEC output fell in April as fighting in Libya and field maintenance in Angola cut supplies, despite extra oil from Saudi Arabia and Nigeria.
Hewson also cited India’s decision to raise interest rates by a larger-than-expected 50 basis points in an attempt to battle inflation as a factor in oil’s retreat.
"There are concerns that higher interest rates could be a growth killer and that could be what is weighing down oil prices. India is one of the biggest emerging economies where a lot of global growth will come from," he said.
Oil investors will also keep an eye on the latest US oil inventory figures later this week.
US crude oil inventories probably increased last week as imports outpaced refinery demand, a Reuters poll showed ahead of weekly industry and government reports.
On average, crude stocks were forecast to rise 1.9 million barrels in the week to April 29. –Additional reporting by Claire Milhench in London and Francis Kan in Singapore
