Oil prices edged lower Friday because of a strengthening dollar after Federal Reserve Chairman Ben Bernanke said this week that interest rates will have to be raised when the economy recovers in order to avoid inflation.
It has been the weak dollar that has attracted billions in investments in energy markets this year because oil is priced in the U.S. dollar. Crude essentially becomes cheaper globally when the dollar falls.
Benchmark crude for November delivery fell 9 cents to $71.60 on the New York Mercantile Exchange. The contract added $2.12 to settle at $71.69 on Thursday.
The Paris-based International Energy Agency raised its expectations for oil demand in 2010, but not by much. The IEA said demand will increase by 1.7 percent, largely from rebounding economies in the Americas and in Asia.
Major corporations and consumers have pared back on energy use as they ride out the recession. Americans, the biggest energy consumers in the world, have cut way back on driving for the past year.
Yet it has been the falling dollar that has driven oil prices higher for months and on Thursday, the U.S. currency hit a 14-month low against the euro. Oil prices flattened to end the week, showing how much the value of the U.S. currency has come to affect energy markets.
Bernanke said Thursday at a fed conference that interest rates will remain near a record low for an extended period.
"At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road," Bernanke said.
Oil has traded in a narrow range this week and prices have moved between $60 and $75 since spring as demand for crude remains tepid even with signs that the economy has moved out of recession.
For the moment, oil markets have reached an equilibrium that has both producers and consumers happy, said Jim Ritterbusch of Ritterbusch and Associates.
Producers say they need at least $70 to continue exploring for more oil. With prices at the pump hovering around $2.50 per gallon, few consumers are complaining. Natural gas prices are also very low, meaning an easy winter for most homeowners.
Prices at the pump edged up 0.3 cents overnight to $2.471 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Prices are 10.2 cents below levels of a month ago and 93.2 cents down from a year ago.
In other Nymex trading, heating oil slipped by less than a penny to $1.84 and gasoline fell by a cent to $1.77 a gallon. Natural gas for November delivery lost more than 11 cents to fetch $4.85 per 1,000 cubic feet.
In London, Brent crude rose 3 cents to $69.80 on the ICE Futures exchange.
Associated Press writers George Jahn in Vienna and Alex Kennedy from Singapore contributed to this report.