Oil slid to $88 a barrel today, extending losses on expectations that a modest Federal Reserve interest rate cut would support the ailing dollar.
US light, sweet crude futures fell 22 cents a barrel to $88.06 in Globex electronic trading by 6.33am, extending Friday's nearly $2 drop. Prices ended some 37 cents lower on the week, but traded in a wide range of about $5.
London Brent crude fell 16 cents to $88.48 a barrel.
Better-than-expected US employment data on Friday reduced the likelihood of an aggressive 50 basis point interest rate cut by the Federal Reserve tomorrow, buoying the dollar, which has traded inversely with oil of late, traders said.
Instead markets are now pricing in a quarter-point cut, a factor that helped support the dollar near a one-month high against the yen today. A weaker dollar makes most commodities cheaper to buy for non-dollar investors.
The world's second-largest oil consumer, China, moved aggressively at the weekend to curb inflation and prevent the economy from overheating by raising its bank reserve ratio by a full percentage point to a record 14.5 per cent - its biggest such move in nearly four years.
After OPEC's decision last week to leave production levels unchanged for the moment, many analysts expected more range-bound trade to prevail heading toward the holiday season.
Some energy experts have said OPEC's output levels are not enough to stem sliding crude inventories and could trigger a crunch when heating demand peaks this winter.
US stockpiles of crude oil dropped last week to their lowest since early 2005. But inventories of refined fuel in the world's largest energy consumer rose during the same week thanks to higher imports and a boost in domestic production.