OIl prices fell to below $79 a barrel Friday as the strengthening U.S. dollar outweighed news that the U.S. economy grew again in the third quarter after contracting for a full year. By afternoon in Europe, benchmark crude for December delivery was down $1.36 to $78.51 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $2.41 to settle at $79.87 on Thursday.

Some analysts say oil may soon approach its high for 2009 of $82 a barrel on evidence the U.S. economy, the world’s largest, is recovering. The Commerce Department said the U.S. economy grew at a 3.5 percent annual pace in the third quarter, the best showing in two years and breaking four straight quarters of declines. The Dow Jones industrial average jumped 2.1 percent Thursday.

“The move higher in oil prices is, in our view, fundamentally justified,” Barclays Capital said in a report. “On the macroeconomic front, so far the path of recovery has surprised to the upside.” Others, however, remained guarded about the strength of the economic recovery.

JBC Energy in Vienna said that “oil still looks to be overpriced and an increase in GDP after four quarters of decreases does not mean the U.S., or the rest of the world, is out of the woods yet.” Analysts point to still fragile demand and the accumulation of huge stocks of oil and petroleum products as reasons to be cautions. “With the fervent mood sweeping oil markets (Thursday) the F word — fundamentals — still seems to be far from many minds,” JBC noted. Oil prices are also affected by the dollar’s exchange rate. Oil is largely bought and sold in dollars, which allows investors holding currencies like the euro or yen to buy more crude when the U.S. currency falls and sell when the dollar strengthens. “It seems quite clear to us that the (Nymex) futures market is currently part of an dollar-led asset bubble,” said Olivier Jakob of Petromatrix in Switzerland.

On Friday, the euro bought $1.4760 in European morning trade, down from $1.4845 late Thursday in New York, while the British pound was also lower, buying $1.6521 compared with $1.6548. In other Nymex trading, heating oil was down 3.42 cents to $2.02 a gallon. Gasoline for November delivery fell 3.90 cents to $1.98 a gallon, while natural gas for December delivery advanced 14.8 cents to $5.21 per 1,000 cubic feet. In London, Brent crude for December delivery was down $1.45 to $76.51 on the ICE Futures exchange.


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