Singapore: Brent crude fell below $125 a barrel on Tuesday in volatile trade as the dollar rebounded from a three-year low and traders weighed the impact of al-Qaeda leader Osama bin Laden’s death on the market.
The dollar index , which tracks the dollar against a basket of major currencies, edged up 0.3%, still not far from a three-year low plumbed in New York trade.
However, Brent crude was still more than $2 above Monday’s low, reached on news that US forces killed al-Qaeda leader Osama bin Laden in Pakistan.
While the death of bin Laden could reduce the threat against the United States by jihadists in the long term, the potential for retaliatory attacks in the short-term would support prices, analysts said.
“The potential of violence from retaliation has more upside than downside risks, and would support the market,” said Serene Lim, commodities analyst with ANZ Bank in Singapore.
“Prices are still down, and that’s probably because the dollar strengthening is weighing on prices.”
The United States issued security warnings to Americans worldwide, while CIA Director Leon Panetta said al Qaeda would “almost certainly” try to avenge bin Laden’s death.
Vows to avenge bin Laden’s death appeared quickly in Islamist militant forums, a key means by which al-Qaeda leaders have passed on information.
ICE Brent crude for June fell 71 cents to $124.41 a barrel by 8:06am, US crude shed 56 cents to $112.96.
Analysts said trading was likely to be thin in Asian hours, exacerbating volatility, as the Singapore market returns from the Labour Day long weekend, and it remains a public holiday in China.
The dollar struggled to pull away from a three-year trough early on Tuesday with higher-yielding currencies like the Australian dollar still in favour even as markets become more concerned over stretched positions.
Sentiment for the dollar has been overwhelmingly bearish as ultra-loose US monetary policy has made the greenback the funding currency of choice in popular carry trades that have helped propel the Aussie to a 29-year high of $1.1011.
“The focus right now is on geopolitical risks, but at the end of the day dollar volatility is going to have an impact on oil prices,” said Lim.
Markets have also been supported this year by disruptions in the oil supplies from Libya and rising tension in the rest of North Africa and the Middle East.
Forces loyal to Muammar Gaddafi stepped up their onslaught on rebel areas of Libya’s Western Mountains late on Monday, rebels said, and refugees said towns in the isolated region were on the brink of starvation.
In Syria, security forces rounded up hundreds of pro-democracy sympathisers, including prominent human rights campaigner Diana Jawabra for the second time during Syria’s uprising, witnesses said.