Oil prices eased this evening at the end of a volatile week as traders took their cue from the strong dollar and falling Wall Street shares, despite upbeat US data and simmering tensions over key producer Iran.
In London trade, Brent North Sea oil for delivery in February dropped 24 cents to $112.50 a barrel. New York's main contract, West Texas Intermediate (WTI) for delivery in February, shed 46 cents to $101.35 a barrel.
The euro slumped to another 16-month dollar low today, as upbeat US payrolls data contrasted sharply with dire economic numbers in the crisis-hit euro zone. The US unemployment rate dropped to 8.5% in December, the lowest level in nearly three years, as hiring surged more than expected, official data showed today.
The economy added 200,000 nonfarm jobs last month, the Labor Department said. That was sharply higher than the average analyst estimate of 150,000.
In reaction, the euro dived to $1.2698, which was last seen on September 13, 2010. The stronger greenback makes dollar-priced crude more expensive for buyers using weaker currencies, helping to dampen demand and prices.
Oil futures had sank yesterday as US stockpiles unexpectedly rose, raising concerns about weak demand in the world's biggest oil-consuming nation. Official data showed that US crude reserves jumped 2.2 million barrels in the week ending December 30.
However, crude oil prices remain supported by tensions in the Middle East between Western powers and major oil producer Iran over Tehran's alleged efforts to build a nuclear bomb.
Earlier this week, oil had spiked close to eight-month highs on the back of heightened tensions between the West and Iran. Tehran will hold fresh military exercises in and around the strategic Strait of Hormuz within weeks, the naval commander of its powerful Revolutionary Guards was quoted as saying today.
The waterway is the world's "most important chokepoint" for oil tankers, according to the US Energy Information Administrations. Some 20% of the world's oil flows through the narrow channel at the entrance to the Gulf.
Iran's regular navy completed 10 days of wargames to the east of the strait, in the Gulf of Oman, earlier this week with tests of three anti-ship missiles. The European Union is moving closer to imposing an Iran oil embargo and Tehran has warned the US to remove its naval forces from the Gulf, threatening to disrupt shipping through the strategic Strait of Hormuz.
"Fresh fears of a military confrontation that would endanger the flow of crude through the Strait of Hormuz have rattled oil markets since the start of the year," Barclays Capital said in a market commentary.
On Wednesday, New York's light sweet crude had spiked to $103.74 a barrel, a level previously reached on May 11. Brent oil meanwhile leapt yesterday to $114.64, its highest point since November 14.
