Oil drops, as dollar strengthens

NEW YORK (CNNMoney.com) -- Oil fell amid a strengthening dollar and continued rise in the stock market.

What prices are doing: Crude for April delivery dropped 73 cents to settle at $82.20 a barrel on Thursday. The price of May crude oil, which becomes active on March 23, settled at $82.53, down 68 cents for the day.

What's moving the market: Crude oil prices fell as the dollar strengthened against major currencies. A stronger dollar tends to push down the price of the U.S. dollar-denominated commodity.

The Dow (INDU) continued its seven-day winning streak as investors shifted their sights from investment hedges, like crude oil, to riskier equities.

Oil investors, who have been trading more on swings in the dollar and stock market, shrugged off government reports on Thursday that showed a drop in initial jobless claims last week, and a better than expected read on the consumer price index, a key measure of inflation.

What analysts are saying: Many analysts say that crude prices are too high, since demand is still shy of 5-year averages. "There's no sign that a rising stock market is translating into stronger demand for oil," said Peter Beutel, a commodities analyst for Cameron Hanover. Wednesday's inventory report showed mainly lower-than-expected crude inventories.

"There is a gradual improvement in inventories and demand in the U.S., but nothing spectacular," he said.

Pressure on oil prices is expected to continue, as traders watch for changes in Chinese monetary policy, which could affect demand in one of the largest economies in the world, and as rising gas prices weigh on consumers.

"The big problem is that at $3 a gallon, consumers are already unhappy with the price of gas," said Beutel.

Though signs point to steady inflation for now, Beutel says that an uptick in inflation, coupled with the inevitability of rising gas "will put a nip in the economic recovery."

The national average price for a gallon of regular unleaded gasoline rose to $2.799, up 1 cent from the previous day's price of $2.789, according to motorist group AAA. Gasoline prices are up over 45% from last year, touching levels last seen in Oct. 2008.

Looking ahead: Barring any surprising economic news, oil prices are expected to continue to trade within the $82 to $83 a barrel range for the rest of this week.

Many traders are closing out April positions, which expire on March 22, as volume rises in the May crude oil contracts.