Oil fell towards $80 today, extending the previous session's near 2 per cent drop, dragged by a firmer dollar on nagging worries over Greece's debt while a surprise rate rise by India stoked concerns over demand.
However, fears of continuing global oversupply are countered by the decline in China's fuel exports in February and implied oil demand rose, as companies prepared for an upcoming domestic demand jump when factories return to work after the winter.
US crude for April delivery, which expires later today, slid for the third-straight session, down 47 cents to $80.21 a barrel at 6.38am. It had settled at $80.68 on Friday, which saw its worst percentage loss since February 25th, and also marked two consecutive weeks of falls.
London Brent crude for April fell 33 cents to $79.55 a barrel.
A Reuters poll of 10 oil-tracking analysts and organisations showed the oil market will likely face oversupply of 150,000 barrels per day (bpd).
"The overall market fundamentals are still not tight. These, combined with the recent strengthening of the US dollar in the last few months, have been one of the reasons why oil is unable to extend its rally," said Toby Hassall of CWA Global Markets in Sydney.
"We just have not seen enough fundamentals to justify further increase in the price. We are still seeing oversupply in Europe and the US."
The US dollar index, measured against a basket of currencies, was up 0.2 per cent to around 80.88, above last week's 79.825 low. The index had rallied 1.4 per cent late last week as the euro succumbed to fresh worries over Greece and its ability to fund itself without euro zone support.
The euro remained under pressure ahead of an Euro zone summit, and was languishing at $1.3518, down from $1.3535 late in New York on Friday, when the single currency had fallen to its lowest in more than two weeks against the dollar..
EU leaders seemed at odds over how or whether to offer assistance setting the scene for a tense summit on March 25-26.
Commodity-linked currencies and those leveraged to global growth such as the Australian and New Zealand dollars were still reeling from last week's unexpected increase in Indian interest rates.
A firmer greenback makes oil, priced in dollars, more costly for foreign currency holders. It also indicates investors shifting away from assets deemed riskier, such as commodities and equities, and into safe-haven bets like US Treasury notes.
Gold also fell further on Monday as investors sold into a stronger US dollar.
India raised interest rates last Friday from record-lows for the first time since it began cutting in 2008, adding to the gloom, as investors feared the tightening move would curb consumption even as the market is looking to robust economic growth in India and China to lead fuel demand.
But China's return to robust manufacturing activity after the slowdown during the cold winter and the Lunar New Year break, could still offer some hope to oil markets.
Implied oil demand in the world's second-biggest energy user rose 19.4 per cent in February over a year earlier, where it consumed 8.65 million barrels of oil per day, though real demand growth has been undercut by swelling stocks.
It also soaked up more gasoline, marked by a 28 per cent fall in February exports against a year ago to 210,785 tonnes and in contrast with January's 600,533 tonnes and a decade peak of almost 1 million tonnes in December.
Diesel exports slid by 11.8 per cent last month from a year earlier to 290,000 tonnes. The drops turned China back into a net fuel importer after being a net exporter in both January and December.
Some support may also come from Mexico, where all three of its main oil-exporting ports on the Gulf of Mexico were shut yesterday due to bad weather.
Reuters