Oil prices retreated Friday after jumping as high as a record $111 a barrel in the previous session as investors fled the declining dollar in search of a haven in commodities.
Analysts said the decline reflected the volatility that has characterized crude futures trading in recent weeks.
"When there are no immediate supply side concerns that justify surging to new record everyday, some pullback is inevitable," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "This is just part of the volatility of trading."
Light, sweet crude for April delivery on the New York Mercantile Exchange dropped 29 cents to $110.04 a barrel in electronic trading by midday in Europe.
In London, Brent crude futures lost $1.34 to $106.20 a barrel on the ICE Futures exchange.
Shum said the expiration of options on the April Nymex crude contract on Friday added to the volatility of trading.
The contract surged Thursday to an all-time trading high of $111 before settling at a record close of $110.33 a barrel, up 41 cents from the previous session.
Crude has risen to records in 12 of the last 13 trading sessions. Analysts blame oil's ascent on the weak dollar, which dropped to yet another low against the euro Thursday.
Crude futures and other commodities offer a hedge against a falling dollar; as well, oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is weak.
Interest rate cuts further weaken the dollar and have helped drive oil's rise, and another reduction in U.S. benchmark lending rates is expected at the Federal Reserve's regularly scheduled monetary policy meeting next Tuesday.
"The dollar traders will be watching the release later (Friday) of the U.S. inflation number for February as an indicator of the Fed decision next Tuesday," said Olivier Jakob, of Petromatrix in Switzerland. "What central banks decide next Tuesday should be more relevant to oil prices than any recent OPEC meetings."
Analysts said the U.S. Commerce Department's report Thursday that retail sales fell in February raised new worries that the economy is headed for a recession that would curtail demand for oil. But analysts expect any oil price weakness to be short-lived.
"In the near term, despite the fact that oil pricing is pulling farther from market fundamentals, this bull run could continue because of the expectation of further (Fed) interest rate cuts and continued weakening of the U.S. dollar," Shum said.
In other Nymex trading, heating oil futures dropped 0.39 cent to $3.1209 a gallon while gasoline prices fell 1.23 cents to $2.6705 a gallon.
Natural gas futures fell 1.6 cents to $10.214 per 1,000 cubic feet.
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