Oil Prices slide as dollar gaiins

Oil futures extended their slide Tuesday as the dollar gained ground, making commodities such as energy futures less attractive to investors seeking a hedge against inflation. But trading was choppy as a debate among investors over oil's direction played out in the marketplace.

Retail gas prices, meanwhile, slipped slightly from the record they set one day earlier.

Investors who previously bought commodities such as oil as a haven against inflation and a falling dollar sold Tuesday as the greenback strengthened against the euro and other currencies. The stronger dollar also made oil more expensive to overseas investors.

Many analysts say oil investors have taken most of their price cues in recent months from gyrations in the dollar.

"The dollar's stronger, and (therefore) oil's weaker," said Brad Samples, an analyst with Summit Energy Services Inc., in Louisville, Ky.

Light, sweet crude for May delivery fell 60 cents to settle at $100.98 a barrel on the New York Mercantile Exchange after earlier falling as low as $99.55. Oil futures fell $4.04 a barrel on Monday.

But oil prices surged as high as $102.55 at times Tuesday as the early dip below the psychologically important $100 level drew buyers betting that high demand will give crude prices room for a further advance. Many large funds that invest in commodities such as oil craft strategies for their traders to automatically buy when prices fall to what they consider key support levels.

The strategies are based on a theory that global demand for oil supports higher prices, despite falling demand and higher supplies in the U.S.

"There's a lot of technical support down below $100," said Phil Flynn, an analyst at Alaron Trading Corp., in Chicago.

Tuesday's oil price uncertainty reflects a debate among investors over oil's future direction. Many analysts believe dollar-induced buying has driven oil prices far beyond levels that can be justified by supply and demand or economic conditions. The second quarter of the year, which began Tuesday, typically sees the lowest petroleum demand. The country's appetite for oil and gasoline have fallen sharply since January, and oil supplies have mostly risen in recent weeks.

But other investors see continued strong demand for oil and fuel from China and India as a sign that oil prices have further to rise, despite demand and supply dynamics in the U.S.