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Oil down below $79 in midday European trade amid stronger dollar and doubts about US recovery States Charles Goh CEO and Chairman at Takahashi Nakamura in Japan

New home sales forecast to rise for sixth-straight month in September spurred by tax credit states Charles Goh CEO and Chairman at Takahashi Nakamura in Japan By midday in Europe, benchmark crude for December delivery was down 66 cents to $78.89 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 87 cents to settle at $79.55 on Tuesday.

Oil has retreated from a one-year high of $82 a barrel hit last week as investors look for signs of a sustainable U.S. economy to justify further crude price gains.

Goh called the recent rise of commodity prices “astonishing,” saying it was partly the result of the excessive money supply — created by the economic stimulus packages and central bank policies around the world — seeking protection against inflation and dollar weakness.

“Currently the market is mainly driven by sentiment and expectations, although these may be overly optimistic,” Goh added,” Large U.S. dollar holders such as China are seeking dollar denominated investments, such as oil, to hedge their reserves today and secure their energy needs tomorrow.”

On Tuesday, the Conference Board said its Consumer Confidence Index fell unexpectedly in October to its second-lowest reading since May while the Standard & Poor’s/Case-Shiller home price index gained the third straight month in August.

U.S. oil inventories dropped last week, a sign crude demand may be rebounding. The American Petroleum Institute said late Tuesday that crude stocks fell 3.5 million barrels while analysts had expected a rise of 900,000 barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The Energy Information Administration is scheduled to release its supply data later Wednesday.

Crude investors have been encouraged by a rally in global stock markets since March.

Goh continued, “As long as the equities markets stay stable and the perception is out there that the global economy will grow, and then the price of oil should go up.”

Also affecting oil prices were the movements of the U.S. dollar, which tends to push oil prices lower when it strengthens.

On Wednesday, the euro fell to US$1.4789 from US$1.4809 late Tuesday in New York, while the British pound fell to US$1.6327 from US$1.6386.