Oil falls sharply on dollar rally

Oil prices have risen by more than 40% so far this year

Oil prices fell by more than $4 a barrel on Thursday as the dollar gained in strength and concerns grew about current global energy demand.

The slide came despite a government report which showed the biggest decline in US stockpiles since 2004.

US light, sweet crude fell $4.41 to $126.62 a barrel, while London Brent slipped $4.04 to $126.89 - having hit record highs of $135 last week.

A stronger dollar makes commodities like oil less attractive to investors.

Oil had briefly moved ahead after the US Energy Information Administration report showed US crude stockpiles had fallen by 8.8 million barrels.

However the EIA said that the fall was a blip prompted by delays in tanker movements - and analysts said that little should be read into the figures.

'$200 prospect'

Observers say that there are growing signs that global energy demand growth is slowing because of high costs and the economic turbulence in the US.

But prices are expected to remain high because of continuing instability in Nigeria's main oil-producing region.

Q&A: High oil prices

Militants in the Niger Delta threatened further attacks on foreign oil installations in the region on Wednesday.

Their most recent attack over the weekend took about 130,000 barrels of oil out of daily circulation.

Global prices have risen by 40% this year, driven by concerns over the level of supply and the weak dollar.

Some analysts have raised the possibility of prices rising as high as $200 a barrel during the next 18 months.

Speculator factor

The impact of rocketing oil prices is continuing to feed through into the wider economy.

UK Prime Minister Gordon Brown said on Wednesday that he was continuing to work with international partners to persuade the Opec oil producers' cartel to increase supply.

But analysts believe his efforts are likely to prove in vain and pressure should, instead, be exerted on leading producers to invest more in long-term capacity.

Opec has so far blamed price rises on speculators and says there is no shortage of oil.

All but three of Optec's members are already at their maximum daily limits for oil output, but Saudi Arabia, Kuwait and the UAE, which do have spare capacity, have so far resisted calls to lift quotas.

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