Oil fell below $80 today, as the dollar recovered and the euro slid on concerns over the European economy, while the surprise rise in US crude stocks offset the fall on gasoline ahead of the driving season.
The euro fell to a one-year low against the yen and was down versus the dollar on nagging fears over Greece's fiscal woes, while the dollar's trade-weighted index rebounded.
US crude for April delivery fell 30 cents to $79.70 a barrel at 0651 GMT, after rising by $1 yesterday, lifted by comments from US Federal Reserve Chairman Ben Bernanke, who reaffirmed his commitment to keeping interest rates low.
London Brent crude lost 24 cents to $77.85 a barrel. "The stronger dollar against the euro is a key factor. People are concerned about issues surrounding Greece, Spain and Portugal," said Tetsu Emori, general manager at Tokyo-based Astmax Co.
"People are also concerned over bearish factors such as the US housing indicators. The market will be looking more at these negative factors than bullish factors, which is the turning point."
Sales of new US homes unexpectedly fell to a record low in January while demand for loans to buy homes hit a 13-year low last week, fanning fears of renewed weakness in the housing market and raising doubts over the pace of the economic recovery.
Portugal's Socialist government, under investor pressure to cut spending and ensure it will not be the next weak link in the euro zone after Greece, has frozen civil service salaries this year as part of its plan to reduce its ballooning fiscal gap.
These countered the initial uptrend, after Federal Reserve chief Ben Bernanke said yesterday interest rates will stay low in view of a weak job market and low inflation.
Mr Bernanke's testimony yesterday to Congress had earlier calmed investors' concerns over interest rate after the Fed said last week that discount rates will be raised to 0.75 per cent from 0.5 per cent, triggering an immediate rise in the dollar.
US crude oil stockpiles rose by 3 million barrels to 337.5 million barrels in week ended Feb. 19 week, data from the Energy Information Agency show, countering industry group American Petroleum Institute's (API) figures on Tuesday showing a large crude inventory fall.
But US gasoline inventories fell 900,000 barrels to 231.2 million barrels, versus analysts estimates of a 400,000-barrel build.
"The build is a result related to summer drive time. There are expectations that (gasoline) supplies won't be enough," said Jonathan Barratt, managing director of Commodity Broking Services.
US refiners normally start stockpiling in April for the start of the driving season in end-May and peaks in June-July.
China continued to show healthy demand for oil, importing 17.1 million tonnes of crude in January, up nearly 33.4 per cent from a year ago, official data showed. "The market appears to be US-centric ... but one hard evidence is the demand we are getting from China, where it has continued to grow," said Mr Barratt.
Reuters