Oil pulls back from record

Oil prices retreated Monday in Asia from last week's record close near $126 a barrel as the dollar strengthened against the euro and yen.

Investors often buy commodities such as oil as a hedge against inflation when the greenback falls, but that effect can reverse when the dollar gains against other currencies, as it has in Tokyo currency markets on Monday.

The euro around midday there was quoted at $1.5405, down from $1.5480 last Friday in New York. The dollar also strengthened against the yen, rising back above the ¥103 mark.

"That would seem to be the major reason why the oil price has lost a little of ground in U.S. dollar terms," said David Moore, commodity strategist with the Commonwealth Bank of Australia in Sydney.

U.S. crude for June delivery dropped 32 cents to $125.64 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore.

On Friday, the contract broke above $126 for the first time and settled at a record close of $125.96 a barrel, up $2.27.

The advance at the end of last week came after Colombia said it recovered documents from a slain guerrilla that indicate Venezuelan President Hugo Chavez has offered assistance to Colombian rebels. Some U.S. lawmakers have cited the documents to argue that the White House should add Venezuela to a list of state terror sponsors that includes North Korea, Iran, Syria, Sudan and Cuba.

Such a move would most likely spur Venezuela to cut off oil exports to the U.S., but analysts believe such a provocative diplomatic step is unlikely.

"That would be self-defeating," said Michael Shifter of the Washington think tank Inter-American Dialogue. "It might give Chavez a boost when he is in serious political trouble at home - and it would risk a further jump in oil prices in the U.S. in an election year."

Moore said in Sydney that China's trade data for April - due out later Monday - could provide another boost for oil.

"China's imports of oil and oil products were very high in March, and if that was strong again that would signal that that part of the market remains fundamentally strong and supportive of the oil price," he said.

Many analysts believe the dollar's protracted decline over the past year has much to do with the doubling in oil prices since May of last year. Another school of thought thinks growing demand in rapidly developing countries such as China, Brazil and India, is the primary factor driving oil higher.

In other Nymex trading, heating oil futures were flat at $3.636 a gallon while gasoline prices fell 0.62 cent to $3.195 a gallon. Natural gas futures rose 7.3 cents to $11.61 per 1,000 cubic feet.