By Grant Smith and Yee Kai Pin March 22 (Bloomberg) -- Crude oil fell to a three-week low in New York on concern governments around the world may follow India in raising interest rates, damping the recovery in global fuel demand. Oil dropped a third day as the U.S. dollar traded near a three-week high against the euro, dimming the appeal of commodities for hedging against inflation. The commodity plunged 1.9 percent on March 19 after India unexpectedly raised rates. The Organization of Petroleum Exporting Countries has spare production capacity in excess of 6 million barrels per day, its president said. “Immediate oil market fundamentals haven’t justified gains beyond $80,” said Andrey Kryuchenkov, a VTB Capital analyst in London. “Until seasonal demand picks up and reduces the stockpile overhang, we’ll keep trading on external factors such as the dollar and concerns over eventual monetary tightening.” Crude oil for April delivery fell as much as $1.67, or 2.1 percent, to $79.01 a barrel in electronic trading on the New York Mercantile Exchange. That’s the lowest price since March 2. It was at $79.24 at 12:05 p.m. London time. Brent crude for May settlement was down $1.22 at $78.66 a barrel on the ICE Futures Europe exchange in London. The April contract in New York, which expires today, fell 1.9 percent to $80.68 on March 19, marking a second weekly decline. India’s move “is raising some concern that the unwinding of stimulus measures might put a dent in overall global economic activity this year,” said Toby Hassall, research analyst at CWA Global Markets Pty in Sydney. “It’s going to either take some time or a string of pretty positive economic data to take us out of this range.” Dollar Advances The dollar rose against all 16 of its major counterparts, reducing the investment appeal of commodities. The U.S. currency traded near a three-week high versus the euro, reaching $1.3499. OPEC, which decided to keep its output targets unchanged at a March 17 meeting, has a “comfortable cushion of spare capacity,” group president and Ecuadorean oil minister Germanico Pinto said at a conference in Geneva today. The organization controls about 40 percent of global crude supply. Hedge-fund managers and other large speculators increased their bets on rising oil prices for a fifth week, according to U.S. Commodity Futures Trading Commission data. Speculative net-long positions, the difference between orders to buy and sell oil, rose 14 percent to 124,143 contracts in the week ended March 16, the commission said March 19. To contact the reporters on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.netGrant Smith in London at gsmith52@bloomberg.net

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