Oil plunges on Greek debt woes

NEW YORK (CNNMoney.com) -- Oil fell Friday as fresh worries over Greece's debt crisis pushed the dollar higher against the euro.

What prices are doing: Crude prices for April delivery dipped $1.52 to settle at $80.68 a barrel on Friday, the lowest level in six weeks. May oil contracts, which become active March 23, also dropped $1.64 to $80.90 a barrel.

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What's moving the market: Oil prices dropped for a second day as the dollar strengthened against the euro. A stronger dollar makes crude, which is priced in U.S. dollars, more expensive for foreign investors, which puts downward pressure on demand and prices.

The dollar was up about 0.5% over the euro to $1.356 on the day. The euro experienced its biggest weekly decline against the dollar since early February as worries over the European Union's support for Greece emerged.

"It looks like the European package [for Greece] may be falling apart," said Bradley Samples, a commodities analyst for Summit Energy. "Knowing that's not good for the euro, [investors] might sell crude."

Despite promising economic news and improving demand, oil prices have been moving in line with the stock market. Many investors view the market's ups and downs as an indicator of economic acclivity, which in turn will affect demand for oil.

The Dow Industrial Average (INDU) was down about 53 points, snapping its eight-day winning streak, but closed on Thursday at its highest level since October 2008.

What analysts are saying: After reaching a 2010 high of $83.18 a barrel on Jan. 6, oil prices retreated over the past few weeks, as global demand continues to hover below historic averages.

"Crude is stalling out," said Samples. "Some traders have backed out [of the market] under the impression that nosebleed valuations are unsustainable."

While Greek debt worries continue to haunt the market, many analysts expect oil prices to rise based on stimulative policies from global central banks, recent policy decisions by OPEC and the Fed, and recent increases in oil demand.

Samples agrees, but expects trading based on the dollar to dissipate in coming months, as investors look more to inflationary pressures in China and other emerging economies.

"Inflation expectations will drive crude oil trading over the course of the year," he said.

Gas prices are expected to move in tandem with crude, putting pressure on consumers and possibly the economic recovery, some analysts say.

The national average price for a gallon of regular unleaded gasoline rose 1.2 cents to $2.811, from the previous day's price of $2.799, according to motorist group AAA.

Regular unleaded gas prices are up 45% from March 2009, but still below the record high of $4.114 a gallon that AAA reported on July 17, 2008.

Looking ahead: April crude oil contracts expire on March 22.

Barring any surprising economic news, oil prices are expected to continue to trade within a tight range early next week.

Also on tap for next week are weekly supply and unemployment reports.