Oil fell this morning, cutting into a 14 per cent three-day gain as traders set aside the latest evidence of OPEC's production cuts to focus on forecasts for a deepening global economic downturn and the stronger dollar.
Activity in Asia was muted by holidays that shut most of the region's big trading centres except Japan.
US light crude for March delivery fell 82 cents to $45.65 a barrel by 4.42am. The contract rose $2.80, or 6.41 per cent, to $46.47 a barrel on Friday, capping a rebound in the frontmonth contract from below $33 a barrel a week ago.
London Brent crude fell 73 cents to $47.64, after having fallen more than $1 earlier.
"There is some profit-taking after the strong gains last Friday. The fundamentals for the oil market are still quite pessimistic and today's fall may be due investors pulling out of oil to put money into gold to gain more certainty," said Tetsu Emori, fund manager at Astmax Co Ltd.
Analysts said oil was also again trading inversely against the US dollar, which rose nearly 1 per cent against the euro to stand near the six-week high it hit on Friday as weak UK and euro zone data led investors to take refuge in the greenback.
The main driver of oil's sharp $2 rally on Friday was the latest evidence of OPEC making good on most of its pledged 2.2 million barrel a day (bpd) production cut this month, with oil consultant Petrologistics estimating OPEC output would fall by 1.55 million barrels per day in January.
But worries about the health of the global economy and its impact on world energy demand short-circuited the rally.
The International Monetary Fund will cut its 2009 global growth forecast again, this time to between 1-1.5 percent from a previous estimate of 2.2 per cent, as economic conditions deteriorate, an IMF official said yesterday.
Dismal economic data released last week also signalled the deepening of the global economic downturn, with British data confirming the first UK recession since 1991, while Spanish unemployment surged to a nine-year high.
Hope that government spending will revive economies has been tempered by fears that the situation may be worse than imagined.
Reuters