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Oil Ends Down Near $90 on Dollar, OPEC

Oil closed down Monday, as the U.S. dollar firmed and Algeria's oil minister hinted that OPEC could raise crude output at its February meeting.

Oil Pipeline
Oil Pipeline

U.S. light, sweet crude for January delivery , which expires on Tuesday, lost 64 cents per barrel, closing Nymex trade at $90.63.

London Brent crude for February delivery was also lower.

Prices slipped after Algeria's oil minister Chakib Khelil said OPEC might increase oil output at a February meeting if the market needed more oil.

Khelil, who will be OPEC's president in 2008, also said the group might not change output if the winter is not harsh and the U.S. economy weakens further.

"I wouldn't exclude the possibility of increasing production if, of course, the market wants it, but for the moment I think we have sufficient supply," he said on the sidelines of an energy conference in Cyprus.

The Organization of the Petroleum Exporting Countries, which pumps more than a third of the world's oil, meets next on Feb. 1 to review supply policy.

Economic Outlook

Crude oil prices, which currently have an inverse relationship to the dollar, had retreated earlier as the dollar reached fresh two-month highs against a basket of currencies.

The stronger dollar also hit gold, which touched its lowest level in about two weeks.

But wheat prices surged above $10 for the first time, due to shrinking world supplies, adding to inflationary concerns that hit equity markets last week and again on Monday.

The uncertain U.S. and global macro-economic outlook has become a major ingredient in the oil price.

Last week, for example, oil moved more violently in response to macro-economic events than to bullish demand growth forecasts from the International Energy Agency.

"The economic outlook seems to be driving it at the moment, more so than supply/demand data," said Simon Wardell, oil analyst at consulting firm Global Insight.

"The market is looking for any sort of clue about whether we are going see the current financial problems spread to the wider economy and cause more of a downturn next year."

Oil is down about $10 a barrel from record highs of $99.29 a barrel, reached on Nov. 21.

The weak dollar, plus fears of a supply crunch over the winter and political tensions in the Middle East, helped drive the price to record peaks.

But oil is also sensitive to any signs that the United States economy is faltering, something that could hit demand.

A concerted effort last week by global central banks to inject more liquidity into credit markets failed to erase those macro-economic worries.

The snowstorm sweeping into New England in the northeast of the United States initially lent support to prices, which had fallen for two days in succession.