Bizcues.com

World oil prices, which had threatened to break the symbolic $120 a barrel level, fell further on Friday after a strengthening US dollar and rising US crude stockpiles prompted traders to lock in profits.

New York’s main oil futures contract, light sweet crude for delivery in June, slid 46 cents to $115.60 per barrel. The benchmark contract closed down $2.24 at $116.06 a barrel during floor trading at the New York Mercantile Exchange on Thursday.

In the foreign exchange market yesterday, the dollar gained in value against the euro amid speculation the US Federal Reserve soon might end its campaign of cutting interest rates. A stronger US currency makes dollar-priced crude more expensive for foreign buyers, tending to discourage demand.

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Oilonomics has gone haywire. The rise in oil prices has now started to hurt. Crude oil price increased five-fold in five years (from $22 per barrel in 2003); doubling in just fourteen months (from $54 per barrel in January 2007 to $110 per barrel in March 2008).

Factors behind the spectacular price increase are the booming energy demand, shrinking conventional resources and consequent shift in demand-supply axis. To add to the misery, dynamics like a weakening dollar, speculative activities and fear of supply disruptions from unstable resource centres have played a significant role.

OPEC ( Organization of petroleum exporting countries) signals the long-term floor benchmark to be around $90 per barrel. But the charged oil market, with its historical complexities, cannot offer anything except a further flaring in the price. Oil addicted economies will be worst hit and will have to work out suitable solutions to insulate development from the oil price curve. India, one of the fastest growing economies with an ever-growing appetite for all forms of energy, is not an exception.

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