Oil fell to $71 this morning, extending losses by more than $3 after touching a 10-month high this week, as rising crude and diesel stocks eclipsed healthy economic data from the United States and Europe.
Investors are also edgy about the pace of economic recovery in China, a likely clampdown on lending and plans to curtail overcapacity, prompting falls in equities markets in Shanghai, Hong Kong and Japan.
US crude for October fell 34 cents to $71.11 a barrel by 7.41am, retreating further from $75 hit earlier this week, the highest level since October. Brent crude lost 40 cents to $71.25 a barrel.
"The question is whether both the commodities and equities markets have priced in the turnaround in the U.S. housing markets and other data," said Ben Westmore, commodities analyst with National Australia Bank.
He was referring to better-than-expected gains in US housing prices, an increase in durable goods orders and consumer confidence this week, lending new credence to the view that the economy is emerging from recession.
"I don't think the markets will move much more on that."
Eyes will now be on the US GDP and jobless claims data later today, as well as German consumer sentiment.
Stirring concerns over the growth of the world's second largest energy consumer, the Chinese cabinet said yesterday it would take steps to curb redundant investment and overcapacity in industries ranging from steel to wind power equipment.
The decision came amid fears that China's $585 billion stimulus plan and a surge in new lending in the first half could trigger wasteful investment and a new crop of bad loans. It followed Premier Wen Jiabao's remarks that the economy faces new difficulties, including trouble boosting domestic consumption.
Reuters