By Grant Smith Sept. 21 (Bloomberg) -- Oil fell for a third day in New York as a stronger dollar and slipping equity markets weakened investor demand for crude. Traders are paying more than ever in the options market to protect against a steeper plunge in crude prices, according to five years of data compiled by Banc of America Securities- Merrill Lynch. The dollar rose against the yen and euro on speculation the U.S. may withdraw economic stimulus measures. A stronger U.S. currency diminishes the appeal of dollar-priced commodities that can be used to hedge against inflation. “Oil is stalling ahead of the fourth-quarter pick up in demand, and we expect more downside” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “There’s potential for a test of $69 and even a move to $66.70 if the dollar strengthens further.” Crude oil for October delivery fell as much as $1.76, or 2.4 percent, to $70.28 a barrel in electronic trading on the New York Mercantile Exchange. It was at $70.34 at 11:40 a.m. in London. The October contract expires tomorrow. The more-widely held November contract fell as much as 2.4 percent to $70.73 a barrel today. Oil-option markets show investors are insuring themselves against further price losses. The gap between prices of options betting on a decline and those that would profit from a rise in oil widened to a record 10 percentage points, according to data compiled by Banc of America Securities-Merrill Lynch. $65 a barrel “Demand isn’t yet strong enough to lift crude out of its $69 to $72 range,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. “A move toward $80 would likely founder, as that sort of price level would have a negative impact on equity markets.” New York oil futures climbed 38 percent the past six months as gains in equity markets increased investor confidence in global economic prospects and a weakening dollar funneled funds into commodities. The rally stalled the past month as U.S. gasoline inventories posted two weeks of gains and distillate supplies reached their highest since January 1983. Brent crude oil for November settlement fell as much as $2.07, or 2.9 percent, to $69.25 a barrel on the London- based ICE Futures Europe exchange. It was at $69.30 at 11:40 a.m. in London. U.S. refineries usually shut units for maintenance in September and October as summer gasoline demand wanes and before winter weather increases heating oil consumption. Refining runs fell in September in nine of the past 10 years and extended declines through October in four of them, according to Energy Department data. The dollar strengthened to $1.4656 per euro as of 11:09 a.m. in London from $1.4712 in New York on Sept. 18. It fell to $1.4768 on Sept. 17, the weakest level since Sept. 25, 2008. The MCSI World Index slipped 0.3 percent at 8:22 a.m. in London. Japan, India and Singapore, Asia’s major oil trading hub, are closed today for holidays.

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