Oil fell to around $71 a barrel this morning, extending its retreat from a near eight-month high as the dollar firmed and analysts said the market had rallied too quickly.
The market on Thursday settled at $72.68, the highest since October 20th, making it look overvalued to some analysts even after falling on Friday. The dollar gained, reducing the investment appeal of commodities.
"From a fundamental point of view, oil prices have already done more than their fair share and are due for a modest setback despite the technicals suggesting otherwise," said Edward Meir of MF Global.
US crude fell 81 cents to $71.23 a barrel by 8.41am. Brent crude for July, which expires later in the day, dipped 66 cents to $70.26.
Post-election political turmoil in Iran, a major oil exporter, did not halt the price correction that many analysts say is justified given falling global demand and high inventories.
Iran's Interior Ministry declared as illegal a rally which supporters of defeated moderate presidential candidate Mirhossein Mousavi plan to hold in Tehran later today.
Unrest has rocked Tehran and other cities since the Interior Ministry released results on Saturday that showed President Mahmoud Ahmadinejad had defeated Mousavi by a landslide in Friday's presidential election.
Oil prices have been buoyed recently by hopes of economic recovery. At the same time, politicians in consumer countries have expressed concern the rise could threaten their economies.
French Economy Minister Christine Lagarde said G8 ministers wanted measures to curb volatility in oil markets, which put at risk growing signs that their economies were heading towards recovery.
In Nigeria, the main militant group said on Monday it had sabotaged an oil pumping station in the Niger Delta operated by Chevron, the fifth attack claimed against the US company in less than a month.
Reuters