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March 19, 2008

Oil prices ease in Asian trade

Growing concerns over the financial market turbulence in the US, which could affect energy demand, saw oil prices decrease by more than one dollar in Asian trade Wednesday, but dealers and observers warn of more volatility ahead.

New York's main contract, light sweet crude for April delivery, dropped 1.16 dollars to 108.26 dollars a barrel, down from 109.42 Tuesday at the close of US trades, reported AFP. London's Brent North Sea crude for May delivery fell 1.14 dollars to 104.42.

The two benchmark contracts ran to record peaks Monday before closing lower as traders fretted that the fallout from rising financial market turmoil would curb energy demand.

“There is a lot of volatility in oil trading and so far this week, we have seen the oil market on a see-saw,” AFP quoted Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore, as saying.

“There is a tug of war from the pull of the financial markets and pull from the fundamentals, which are weakening, so this tug of war is likely to continue in the coming weeks,” he said, adding that the recent turmoil in the global financial markets had triggered a flood of funds into commodities, including oil, as investors seek a safe haven.

Oil prices had surged to several record high levels in recent weeks, driven by the US currency's persistent slump against the euro and other major units which in turn triggered a flood of funds into commodities including crude.

The weak US currency makes crude futures an attractive investment option because it is priced in dollars, like other commodities, and becomes more affordable for purchasers holding stronger currencies. Investors also view oil futures as a hedge against inflation.

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