Oil slipped below $66 a barrel today to extend last week's 8.4 per cent drop, as investors focused on high inventories and sluggish demand, shrugging off rising tension between Iran and the West.
Gains in the US dollar also put pressure on oil, which had risen earlier in the session on the back of Iran's test firing of missiles. Stock markets fell in Asia and were flat in Europe.
US crude fell 48 cents to $65.54 a barrel earlier this morning after rising by as much as 64 cents. The contract settled up 13 cents at $66.02 on Friday. London Brent fell 41 cents to $64.70.
"The impact of the tensions over Iran's nuclear programme on oil prices will be a lot more muted this time around given the spare capacity and high US inventories," said David Moore, analyst at the Commonwealth Bank of Australia.
Iran test-fired a missile today that defence analysts have said could hit Israel and US bases in the Gulf region, state television reported.
The drills coincide with increased tension in Iran's nuclear dispute with the West, after last week's disclosure by Tehran that it is building a second uranium enrichment plant.
Tensions over Tehran's nuclear programme have supported oil prices in recent years. The country is the second-largest oil producer in the Middle East and a major crude oil exporter.
In late 2008, Iran threatened to block the Strait of Hormuz, through which about 40 per cent of the world's globally traded oil passes, when tensions rose in another row with the United States around the nuclear work.
Even so, sluggish oil demand, reinforced by some lacklustre economic data from the United States last week, continued to command investors' attention.
Oil prices posted their largest weekly decline in around 2-3 months last week, pressured by government data showing US crude oil inventories had risen, suggesting demand remains weak.
US durable goods orders dropped by the largest amount in seven months while a rise in new home sales was less than forecast, according to reports from the US Commerce Department today.
Reuters