Oil fell around $1 to below $69 a barrel today, extending declines into a ninth day on continued worries over high inventories and a stronger dollar.
Data showing higher-than-expected US retail sales in November pushed the dollar to a two-month high against the euro on Friday, with support for the currency continuing today on speculation that the Federal Reserve could start tightening policy sooner than previously expected.
A stronger dollar prompts investors to sell off commodity positions and tends to pressure crude prices.
Crude for January delivery was down 99 cents at $68.88 a barrel by 0318 GMT, after falling as low as $68.59 earlier, the lowest since October 5th.
Crude, up some 55 per cent so far this year, but still less than half its July 2008 peak of more than $147 a barrel, has fallen some 12 per cent in the past nine sessions.
"Recently forex rates have had a large impact on the market," said Tomokazu Amano, an analyst at Mitsubishi Corp Futures & Securities in Tokyo. "As the Christmas and year-end seasons approach, position adjustments to cut long positions are also increasingly being seen."
Money managers cut their net long crude oil position on the New York Mercantile Exchange in the week through December 8th as oil futures fell, the Commodity Futures Trading Commission said on Friday.
Traders said one item to watch this week is the US Federal Reserve's monetary policy decision, to be announced on Wednesday.
The Federal Open Market Committee will likely try to find a way to capture a somewhat brighter economic outlook in its policy announcement, while maintaining its pledge to keep borrowing costs at near record lows for an "extended period."
Concerns about a sluggish recovery in global fuel demand, along with high fuel stockpiles in the United States, have also pressured crude prices.
In particular, stocks at Cushing, the delivery point for NYMEX WTI crude futures, have swelled by 7.8 million barrels in the last six weeks to 33.4 million barrels, putting pressure on the front month and widening its discount to the second month to over $2, from around 40 cents in October and 60 cents in November.
However, oil storage capacity at Cushing has expanded by 5.2 million barrels this year, a Reuters survey shows, cutting the risk that a shortage of tanks could cause oil prices to plunge.
Asian shares were mostly down today. Japanese stocks were down slightly on today, despite a Bank of Japan survey showing Japanese business confidence edged up more than expected in the three months to December.
The market has largely factored in an outlook that the Organization of the Petroleum Exporting Countries would hold its output targets steady at its meeting on December 22nd.
The recent drop in the price of oil will not affect Opec's inclination to keep its production target unchanged, Kuwait's oil minister said yesterday.
Separately, Iraq, emerging from the shadows of war, expects to boost its oil output to rival the level of top producer Saudi Arabia after awarding some of its most attractive oilfields to global energy companies.
At the end of a two-day bidding round for 10 oil contracts - the second auction since the 2003 US invasion - Baghdad had received pledges from oil firms to boost output by 4.765 million barrels per day, almost double Iraq's current output.
Reuters