By Dan Strumpf
NEW YORK (Dow Jones)--Oil futures fell sharply Friday, extending earlier losses after the dollar jumped against the euro.
Light, sweet crude for June delivery recently traded down $2.05, or 2.1%, to $96.39 a barrel on the New York Mercantile Exchange. With the contract set to expire at the close of trading Friday, the more actively traded July contract fell $1.82, or 1.8%, to $97.11 a barrel.
Brent crude on the ICE futures exchange fell $2.25, or 2%, to $109.17 a barrel.
Oil futures mounted a retreat after the dollar rallied, as currency investors sold euro positions due to persistent concerns over euro-zone debt. Germany's Bundesbank sounded a warning against an extension of maturities on bonds issued by debt-racked Greece.
"We reacted to a little bit of strength in the dollar and it just kind of snowballed," said Peter Donovan, vice president at Vantage Trading in New York.
A stronger dollar typically weakens crude prices as the dollar-denominated commodity becomes more expensive for holders using other currencies. The ICE Dollar Index, tracking the dollar against a basket of currencies, recently rose 0.7% to 75.660.
Although the dollar was the biggest driver of crude Friday, prices have been in a downward trend in recent weeks as several economic reports point to weakening demand in some of the world's biggest users. Nymex crude has fallen sharply from its two-and-a-half year high of $114.83 a barrel reached May.
On Thursday, the Conference Board said the index of U.S. leading economic indicators unexpectedly fell in April, the first decline since June 2010, according to the Conference Board. The report offers an economic outlook for the next three to six months in the U.S., the world's largest crude consumer.
Meanwhile, official government data showed Japan's economy slipped into a recession in the first quarter, as the March 11 earthquake battered economic activity. Japan is the world's No. 3 oil consumer.
Market participants are closely watching reports on economic activity as the U.S. enters the all-important summer driving season, a period of peak gasoline demand. Weak economic readings typically mean consumers have less money to spend on vacations and driving. The disappointing reports are coinciding with pump prices that continue to hover near $4 a gallon.
"High gasoline prices still represent a hazard to sustainable upward buying trends by the consumer," said Jim Ritterbusch, head of oil-trading advisory firm Ritterbusch and Associates.
Still, auto club AAA said U.S. auto travel over the Memorial Day weekend should hold up well. AAA said Memorial Day travel will fall just 0.3% from a year ago.
Prices at the pump have retreated in recent weeks, coinciding with the decline in oil futures. A gallon of regular cost an average of $3.89 a gallon, AAA's Daily Fuel Gauge Report said Friday, down from $3.98 a week ago.
Front-month June reformulated gasoline blendstock, or RBOB, recently fell 4.03 cents, or 1.4%, to $2.8857 a gallon. June heating oil gave up 3.65 cents, or 1.3%, to $2.8582 a gallon.
-By Dan Strumpf, Dow Jones Newswires; 212-416-2818; dan.strumpf@dowjones.com.
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