US crude futures reversed gains from earlier today to fall below $89 a barrel, as investors looked past the political crisis in Egypt and took note of heavy inventories in the US.
Oil prices were also earlier buoyed by comments made by Opec members at the weekend. Kuwait said oil prices could exceed $110 a barrel if Egypt's unrest continued, and Venezuela said prices could more than double to $200 if the Suez Canal closed.
Iran - which holds the rotating Opec presidency - said there would be no need for an emergency Opec meeting even if oil prices hit $120.
"But the fall in prices now does not surprise me," said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp. "There was a panic reaction towards the Egyptian crisis earlier, but there should be a technical correction in prices to the mid $80s level."
US crude for March fell 38 cents to $88.65 a barrel at 0809 GMT, while ICE Brent rose 14 cents to $99.98 a barrel.
Oil prices fell nearly 2 per cent on Friday as an unfounded report from Egypt set off speculation that president Hosni Mubarak could step down shortly.
Opposition groups including the banned Muslim Brotherhood held talks with the government on Sunday to resolve Egypt's political crisis, but said their core demand for the removal of the president was not met.
Demonstrators in central Tahrir Square, focal point of an uprising that has rocked the Arab world and alarmed Western powers, said they would intensify their 12-day battle to oust the president who has vowed to stay on until September.
What really worries traders is that unrest in Tunisia and Egypt could fuel similar protests in bigger oil producers such as Libya - or even Saudi Arabia, creating massive uncertainty over oil supplies.
"Opec is more than happy to see those levels (above $95 a barrel), and jobs data in the US is also positive, but in my opinion, $90 a barrel is going to hurt the economy's recovery," said Benson Wang of Commodity Broking Services in Sydney, who added that the unrest in Egypt will be resolved.
"But crude supplies are still heavy," said Mr Wang, pointing out that fundamentals are not strong enough to sustain the high crude prices.
Domestic US crude stocks rose 2.59 million barrels to 343.16 million barrels in the week to January 28th, data from EIA showed.
Egypt controls the Suez Canal and the Suez-Mediterranean (SUMED) oil pipeline, which together moved over 2 million bpd of crude and oil products in 2009.
More than 34,000 vessels passed through the canal in 2009, of which nearly 2,700 were oil tankers carrying some 29 million tonnes of oil, according to the U.S. Energy Information Administration.
"The Suez remains open and people are more comfortable now with the situation and they know that sooner or latter, Egypt's president will go. These took some of the premiums off crude prices," said Mr Nunan.
Venezuela's oil minister Rafael Ramirez, who is usually hawkish on prices, said on Friday that Opec would call an emergency meeting if the canal closed.
"There is sufficient oil (in the market) and there have been no interruptions, but if they close Suez, that could take the oil price to $200," he told reporters.
Opec members will meet with consumers at an energy conference in Riyadh on February 22nd and are expected to talk informally about output levels.
Reuters
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