MAY 17, 2010, 3:38 P.M. ET.

Crude Oil Slides to a 2010 low

NEW YORK—Crude-oil prices fell to the lowest point since December, as investors who had bought oil anticipating a steady global economic recovery rushed back to the safety of the dollar.

The price of the futures contract for light, sweet crude for June delivery fell $1.53, or 2.1%, to $70.08 a barrel on the New York Mercantile Exchange, the lowest settlement since December. Brent crude on the ICE futures exchange fell $2.83, or 3.6%, to $75.10 a barrel.

Oil prices have plunged nearly 20% in the past two weeks, as Greece's fiscal crisis has created new anxiety about whether Europe's economic rebound from last year's downturn can be sustained. The European Union and International Monetary Fund are moving ahead with a bailout plan, but high debt levels are expected to force harsh budget cuts in Greece, Portugal and Spain, threatening economic growth.

Monday's decline, the fifth straight for oil, came after the euro hit a four-year low of $1.2234, though the currency had recovered to $1.2350 when Nymex futures settled. The weaker European currency makes dollar-denominated oil more expensive to purchase using the euro, marking a stark reversal from last year, when a weak dollar helped to more than double oil prices.

"It was only a year ago that [people] wanted oil in euros," said Phil Flynn, an analyst with PFGBest in Chicago. "That play isn't doing very well now."

In the oil market, most demand growth is seen coming from Asia and the U.S., rather than Europe. Expansion in either region at a rate that would reduce surplus inventories left over from the downturn is far from a sure thing, however. China, widely expected to provide more than one-quarter of global oil-demand growth this year, may be moving to tighten lending, which likely would lower inflation but also reduce demand growth. U.S. growth has come in fits and starts, with oil and fuel inventories soaring in the past month as demand improved.

"Physical crude markets are oversupplied, wherever you look there are more barrels than demand," said David Wech, head of research with JBC Energy in Vienna.

Nymex futures have come under particularly heavy downward pressure from record oil inventories at Cushing, Okla., where the physical barrels underpinning the Nymex contract are delivered. With the June contract set to expire on Thursday, traders are avoiding taking a position that would require them to accept delivery at Cushing, leaving far more sellers in the market.

June crude has traded at a discount of nearly $5 to the July contract at times, the widest such gap in more than a year. Brent crude, reflecting the market for oil produced in the North Sea, also is trading at a substantial premium to the U.S. benchmark.

Analysts expect U.S. oil inventories to rise a further 800,000 barrels in data scheduled to come from the Energy Information Administration on Wednesday, according to a Dow Jones survey. Gasoline stocks are expected to fall 800,000 barrels, while distillate inventories, including heating oil and diesel, are expected to rise 800,000 barrels. Refinery utilization is expected to fall 0.3 percentage point to 88.1% of capacity.

June reformulated gasoline blendstock, or RBOB, fell 8.77 cents, or 4.1%, to $2.0431 a gallon. June heating oil shed 7.54 cents, or 3.7%, to $1.9852 a gallon.

Write to Brian Baskin at brian.baskin@dowjones.com

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