US crude oil dipped to below $77 a barrel today, weighed down by gains in the dollar and a bigger-than-expected build in US crude inventories.
The bounce in the dollar fuelled profit-taking in commodities such as gold and oil, while a fall in Asian equities supported the dollar as a safe haven trade.
A US Energy Information Administration report that showed a rise of 1.8 million barrels in crude oil stocks last week saw oil dropping nearly 3 per cent in the previous session, to settle at $76.94 a barrel.
"It's a reality check. There's a build-up in inventories and the market got sold off," said Tony Nunan, risk management executive at Mitsubishi Corp in Tokyo.
The US government data was more bearish than an earlier industry report of a 1.2 million-barrel build and far greater than the forecast rise of just 600,000 barrels in a Reuters poll.
By 0606 GMT, US crude futures were down 4 cents to $76.90 a barrel. Brent crude futures inched up 6 cents to $76.08 a barrel.
Although oil prices have risen 77 per cent so far this year, they are still nearly 47 per cent below their high of more than $147 a barrel struck in July last year.
However, firm Chinese oil demand put a lid on the oil price drop.
China's annual GDP growth rate could reach 10 per cent in the fourth quarter as the economic recovery exceeds expectations, with full-year economic growth at about 8.3 percent, said Fan Jianping, chief economist with the State Information Centre.
He added that next year's economic growth was unlikely to bring inflation risks, with the consumer price index possibly rising about 2.5 per cent.
The recovery of the global economy, however, is seen choppy and worries of fundamental oil demand set in, following a rise in US oil product inventories. EIA data showed distillates logging an unexpected increase of 300,000 barrels and gasoline up 2.5 million barrels.
Christophe de Margerie, chief executive of French oil major Total SA, said low global demand did not justify the current high price for oil, above $76 a barrel.
Undermining oil markets, the greenback staged a broad rally due to data showing a drop in US jobless claims and fuelled by lower commodity prices and weaker equities.
Investors wary of riskier assets such as high-yield currencies and book profits as several policymakers warn the economic recovery is still fragile.
The dollar bounced today as investors wondered if US president Barack Obama's nine-day visit to Asia would generate pressure on some countries to let their currencies rise.
Against a basket of currencies the dollar was up at 75.596 and off 15-month lows of 74.774, though it remains within a downtrend channel that stretches back to May.
Oil and the dollar tend to be inversely correlated because a weak dollar makes the commodity cheap for non-dollar buyers, and vice versa.
The number of US workers filing new claims for jobless benefits last week fell to the lowest level since January, the government said yesterday, showing the hard-hit labour market may be slowly improving.
Reuters