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London: Oil fell from record highs near $110 a barrel on Tuesday as the US dollar rallied after the Federal Reserve and other central banks injected liquidity into strained financial markets.
US light crude for April delivery was down 75 cents at $107.15 a barrel by 1400 GMT, after it touched a record $109.72 a barrel - the fifth straight day of new records. London Brent crude was down 32 cents at $103.84, off its record high of $105.82.
"Oil is reacting to the reversal of the dollar on coordinated central bank liquidity action," said Tom Bentz, analyst at BNP Paribas Commodity Futures.
The euro initially was bolstered by a better-than-expected reading of investor sentiment from Germany that pushed it to $1.5495 in late-morning European trading.
But when the Fed, ECB and Bank of England announced that they were joining with other central banks to ramp up efforts to provide more relief in the credit crisis, the euro plunged as low as $1.5331.
It later clawed back some ground, rising to $1.5380.
The Fed announced a new effort with other central banks to add up to $200 billion to strained credit markets, boosting stocks and helping the dollar rally.
The Fed expanded its securities lending programme, offering up to $200 billion of highly-liquid US Treasury securities to primary dealers, secured for 28 days. The action came on the back of an announcement from the Fed on Friday that it would expand auctions of short-term cash to $100 billion in March and launch a series of repurchase agreements expected to be worth $100 billion, bringing the total of recently announced action to a hefty $400 billion.
"Looking at the big picture, we believe that the recent price surges in the commodity sector have been for the most part triggered by large capital inflows from institutional investors, hedge funds above all," said fund manager Tiberius Asset Management in a research note.
Goldman Sachs warned oil was at risk from fund liquidation due to cyclical fundamental weaknesses in the next few months.
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