Oil fell below $82 a barrel today, extending the previous day's losses, as the US dollar held onto gains against the euro amid worries over Greece's debt woes, and a rise in Opec exports loomed.
The dollar's safe-haven status grew after Greece said it could not achieve promised deficit cuts if its borrowing costs remain high, raising the stakes in its quest for the European Union to help tackle its debt crisis.
But Athens dismissed a report it was planning to call in the International Monetary Fund if EU leaders do not agree on a rescue plan next week, calling IMF aid a last resort.
US crude for April delivery shed 23 cents to $81.97 a barrel by 6am, after settling 73 cents down at $82.20 yesterday. London Brent crude for May fell 22 cents to $81.26.
Still, oil is on track for a 0.91 per cent gain this week, as bearish pressures are offset by investor expectations of a steady economic recovery, which is helping Asian stock markets close in on a sixth straight week of gains.
"The dollar is firmer, and that's a factor affecting the oil price, but we've seen this pattern before - when oil gets above $82 or $83, buyers turn cautious and prices fall back," said David Moore, Commodity Strategist at the Commonwealth Bank of Australia in Sydney.
"The broader macro-economic story remains one of international recovery, but oil fundamentals are not particularly tight at the moment, and for that reason, when the price gets to those levels, we see more caution in the market, though the underlying tone remains positive," he added.
The dollar index, which tracks the performance of the greenback against a basket of six major currencies, edged 0.1 per cent higher to $80.306 by 6.00am.
Crude prices tend to fall with a stronger dollar as investors seek the safer haven of the US currency over that of commodities. A weaker dollar also makes dollar-denominated commodities less expensive for holders of other currencies.
Falling compliance by Opec has been helping cap prices, with most estimates suggesting production from the group has been rising since early 2009 despite unchanged quotas.
The group is likely to continue to leave its oil output quotas unchanged at its next meeting in October, Kuwaiti Oil Minister Sheikh Ahmad al-Abdullah al-Sabah told Reuters yesterday.
Further evidence of slipping quote compliance comes from UK consultancy Oil Movements, which forecast seaborne oil exports by Opec, excluding Angola and Ecuador, will rise by 70,000 barrels per day (bpd) in the four weeks to April 3rd.
The rise in sailings comes at the beginning of the second quarter, when demand usually declines for seasonal reasons.
Reuters