Oil drops on profit taking

Oil fell in Asian trade today on profit-taking after overnight gains driven by hopes for improved demand as the global economy recovers, analysts said.

New York's main contract, light sweet crude for November, delivery fell 41 cents to 72.86 dollars a barrel. Brent North Sea crude for November delivery sank 22 cents to 71.14 dollars.

"Coming off recent highs, the only thing I would note is with prices getting to 73 dollars, that might have encouraged some profit-taking," said David Moore, a Sydney-based commodity strategist with the Commonwealth Bank of Australia.

Looking ahead, the under-performing US dollar is likely to remain a big influence in driving crude prices higher, Moore said. "I think the fragility of the US dollar has been a supporting
factor," he said.

A struggling greenback tends to boost crude prices particularly because the dollar-denominated commodity becomes cheaper for foreign buyers holding stronger currencies. The US currency had come under pressure recently from speculation that the United States would be slower to tighten monetary policy than other central banks.

Rod Smyth at Riverfront Investment Group said the Fed is still flooding the market with dollars, making it hard to increase the value of the greenback.

The Fed cut interest rates to virtually zero percent last December to help jolt the economy out of its worst recession in decades.