Oil fell $1 and dropped back below $71 today, paring some of the previous day's 3 per cent gain, as worries about a rise in US crude inventories offset optimism from positive US and Chinese manufacturing data.
The US dollar's fall to its lowest level this year helped boost US crude oil futures yesterday, but with the dollar hovering near this level there was little new direction from the currency markets.
"The strong rally in oil prices over the past few days gave investors an opportunity to take some profits. There are also signs of increasing supplies," said Victor Shum, a Singapore-based analyst at Purvin and Gertz.
"And we should remember that we are going to enter a period of slow autumn demand. With supplies rising, it will not be surprising for oil to pull back below $70," he added.
US light, sweet crude fell 69 cents at $70.89 a barrel earlier, after having fallen earlier by as much as $1.06 ICE Brent crude fell 37 cents to $72.18 a barrel.
Cautious statements from UBS, which posted a another big quarterly loss of 1.4 billion Swiss francs ($1.31 billion) on Tuesday, also dampened investors' risk appetite, some analysts said.
Yesterday's gains brought oil prices, still less than half the record high of over $147 hit in July 2008, within sight of the year's high of $73.38 set in June. Some analysts said the strong rally in equities - global stocks surged to a nine-month high on Monday - and increasing signs of a global economic recovery would limit the downside for the oil market as investors' appetite for risk rises.
Today, Asian stocks climbed to an 11-month high on hopes a V-shaped recovery may be forming in the United States.
"Oil will struggle to break $75 but there might be a support for the market at current levels because of the strong PMIs," said Victor Say at Informa Global Markets.
The US manufacturing sector continued to shrink in July, but at a slower pace than in June and more slowly than expected, according to Institute for Supply Management data, while Chinese PMI data showed a fourth straight month of growth.
Reuters