Oil fell more than 2 per cent to hover near $51 a barrel this morning, extending the previous session's losses, as a bleak near-term energy demand outlook prompted investors to take profit on its recent rally.
Analysts say the US government's rejection of turnaround plans for troubled automakers GM and Chrysler also dampened investors' sentiments and encouraged further sell off.
US oil for May delivery fell $1.14 to $51.24 a barrel by 5.26am. The contract fell $1.96 to settle at $52.38 a barrel on Friday, pulling back from Thursday's four-month high.
London Brent crude fell 95 cents to $53.07.
Asian shares and U.S. stock futures slumped today, while safe-haven US Treasuries gained after the Obama administration's autos task force rejected turnaround plans for GM and Chrysler, which raised the prospect of bankruptcies that could further debilitate the already ailing US economy.
Analysts said a recent strengthening of the US dollar, which rose against other major currencies on Monday, also added downward pressure on oil prices.
Oil is up about 14 per cent since the start of the month and is looking for its biggest monthly gains since October 2007, thanks to rallying stock markets and tightening oil supplies as the Organization of the Petroleum Exporting Countries (OPEC) curbs exports.
“The overall demand outlook, at least in the short term, continues to look quite bleak. The rally seen in the last two weeks might perhaps have ran its course," said Toby Hassall, head of research at Commodities Warrants Australia.
Industrial output from Japan fell by a greater-than-expected 9.4 per cent in February, as weak demand weighed on an economy mired in its worst recession since World War Two, but factories forecast a small rise in production in coming months.
Also casting a pall over oil prices were comments on Sunday from the Organisation for Economic Cooperation and Development (OECD) that unemployment was set to reach double digits in many developing and advanced countries.
Still, analysts said hopes that the US economy had finally turned a corner were offering some underlying support for oil, keeping prices above the psychologically important $50-level.
President Barack Obama said in an interview published last night that he saw “glimmers of stabilization” in some areas of the US economy, including pockets of the domestic housing market.
Reuters