Oil fell below $81 a barrel today, extending Friday's losses, pressured by a stronger dollar and weak US consumer confidence data that fanned worries about flagging demand in the world's top energy user.
The dollar rose broadly today as investors took refuge in its safe-haven status after fears of more liquidity tightening measures by China's central bank pummelled Asian stocks.
The market will scour US February industrial output data, due later, for further clues to the health of the world's largest economy, and a statement from the Federal Reserve at the end of its two-day interest rate-setting meeting on Wednesday, for evidence the recovery is still on track.
"Sentiment is a bit mixed today, with prices driven lower by profit-taking, as stronger-than-expected US February retail sales were offset by a decline in March consumer confidence," said Ben Westmore, commodities analyst at the National Australia Bank in Melbourne.
"The market will await further clues on demand outlook from the Fed's rate decision on Wednesday."
By 6.30am, US crude for April delivery had fallen 51 cents to $80.73 per barrel, after settling at $81.24 on Friday. London Brent crude was down 49 cents at $78.90.
US consumer sentiment declined slightly in early March, with Americans less positive about the job outlook, a survey released on Friday showed.
But February retail sales rose unexpectedly, despite heavy snow storms that were thought to have kept shoppers at home and bolstered hopes of a sustainable economic recovery.
At 1.15pm, the Federal Reserve will unveil industrial output and capacity utilisation data for February.
Economists expect a 0.1 per cent fall in production and capacity usage of 72.6 per cent, compared with January's rise of 0.9 per cent in production and a capacity usage of 72.6 per cent. The Fed is expected to hold benchmark rates near zero and reiterate its pledge to keep them low for an "extended period", due to lingering weakness in the US jobs market and nagging doubts over the solidity of the economic rebound.
But since US consumers are buying more and companies appear to be on the verge of hiring again, policymakers in the Fed may ponder on how long to keep its ultra-low rate pledge.
The US dollar gained today as a drop in Asian stocks prompted some investors to shy away from riskier assets such as the euro and sterling, which have been hit by sovereign debt concerns.
Shares in Australia, Shanghai and Hong Kong fell today, on concerns that Beijing may continue to tighten liquidity to fight higher-than-expected inflation.
On the supply front, the market will also eye the outcome of Opec's meeting later this week.
The Organisation of the Petroleum Exporting Countries, which pumps at least one in every three barrels of oil, meets in Vienna on Wednesday to discuss production policy. Officials have said they do not expect a change in targets while prices are within their desired range.
Reuters