Oil prices drop as Dollar strengthens

Friday's precipitous fall was prompted largely by the surge in strength of the Dollar compounding lingering concerns over the oil demand picture.

One of the key elements of the oil price spike in 2008 was the move into oil as a hedge against the weak dollar. The rebound in the greenback has obviated the need for this play and unwinds have added to downward momentum. WTI and Brent crude contracts slipped below $115, over 20% lower than the peak of early July.

The conflict in Georgia, with its implications for the energy markets, is likely to truncate the slippage for the time being with participants reluctant to aggressively sell down in the face of geopolitical uncertainty. Compounding this factor in the markets are comments from Tehran underlining their determination to pursue their nuclear agenda even in the face of further threatened UN sanctions.

This morning markets are trading higher on foot of the Georgian situation with all eyes on Tbilisi although the prospect of aggressive upside movement is low given the pre-disposition of the market to sell into any strength.

Today's range for Brent set for $113.50-116.50 with a slight upside bias.