LONDON (AP) — Oil prices fell below $86 a barrel Friday in Europe as investors shifted from commodities to the dollar amid renewed fears about a debt crisis in Europe and worries that Beijing will move to cool growth in China’s overheating economy.
Benchmark oil for December delivery was down $1.88 to $85.93 a barrel by early afternoon in Europe in electronic trading on the New York Mercantile Exchange.
The contract settled unchanged at $87.81 on Thursday after earlier hitting a two-year high on news that U.S. crude and gasoline stockpiles declined last week in a sign of improving demand for fuel.
Oil prices have climbed steadily in recent weeks because the dollar has weakened against other currencies. That’s largely because of the Federal Reserve’s decision to pour $600 billion into a bond-buying program to stimulate the U.S. economy.
But oil retreated Friday as the dollar gained against the euro, making the commodity more expensive for buyers holding that currency.
Also hitting sentiment was a plunge in Chinese stock markets on concerns Beijing will take more steps to cool economic growth after inflation hit a 25-month high in October. China is the world’s largest energy consumer.
World markets followed Chinese stocks lower. Oil prices tend to move in the same direction as stocks because investors believe that if companies are doing well, they will need more energy.
“This price slump can be explained by a general weakness of commodity prices triggered by the stronger U.S. dollar and rumours of an imminent interest rate hike in China,” Commerzbank said in a report.
The International Energy Agency’s monthly forecast on oil demand failed to lift prices. The IEA raised its forecast slightly for oil demand this year, and kept it broadly unchanged for next year.
The IEA said global oil demand would average 87.3 million barrels a day in 2010, 400,000 higher than in its report from the prior month. For 2011, it said demand would rise by 1.2 million barrels to 88.5 million barrels a day, the same as the previous month.
The 16-nation euro bought $1.369 after falling as low as $1.3608 on Friday morning, dented by mounting speculation that Ireland — one of Europe’s most financially troubled countries — would not be able to cut public spending and may have to resort to a bailout. That revived fears of a wider European debt crisis.
In other Nymex trading in December contracts, heating oil fell 3.4 cents to $2.39 a gallon and gasoline fell 0.3 cents at $2.21 a gallon. Nautral gas dropped 1.2 cents to $3.91 per 1,000 cubic feet.
In London, Brent crude slid $1.63 to $87.36 a barrel on the ICE Futures exchange.