Oil prices fell below $70 a barrel on Wednesday as investors weighed mixed signals from the US economy amid sliding equity markets and waited for new data on inventory levels.
Benchmark crude for July delivery was down 81 cents to $69.66 a barrel by mid-afternoon in Europe in electronic trading on the New York Mercantile Exchange. On Tuesday, it fell 15 cents to settle at $70.47.
Oil prices this week have come off eight-month highs near $73 a barrel amid some signs that the US economy, while past the worst of a severe recession, is still weak. The Federal Reserve said on Tuesday that industrial production fell a larger-than-expected 1.1 per cent in May.
After a rally of almost 40 per cent since March 9, the Dow Jones industrial average has fallen 3.3 per cent over the first two days of the week.
Meanwhile, the Commerce Department said home construction jumped in May by the largest amount in three months after hitting a record low in April.
"There have been some mixed signs," said Toby Hassall, an analyst with investment firm Commodity Warrants Australia in Sydney. "The last few days we've seen a turn toward negative sentiment. Oil looks set for a correction."
The market is awaiting the Wednesday release of the Energy Department's weekly report on petroleum inventory data. It is expected to show a 1.7 million-barrel drop in crude oil reserves for the week ended June 12, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Platts also expects gasoline stockpiles to fall by 650,000 barrels, distillate stocks to rise by 950,000 barrels and refinery capacity to rise 0.25 percentage point to 86.15 per cent. A reading above or below estimates can influence market trading. Crude traders have also been watching the dollar. A weakening dollar helped fuel a doubling of the oil price since March as investors often look to commodities such as crude as a hedge against inflation.
The euro gained to $1.3889 on Wednesday from $1.3813 on Tuesday. "Oil will likely drift below $70 and maybe to $65." Hassall said. "It's been a very strong rally, driven by sentiment rather than data, which makes it look vulnerable to a correction." In other Nymex trading, gasoline for July delivery fell 3.71 cents to $2.0340 a gallon and heating oil dropped 0.52 cent to $1.8198. Natural gas for July delivery fell 2.6 cents to $4.103 per 1,000 cubic feet.
In London, Brent prices fell 71 cents to $69.53 a barrel on the ICE Futures exchange.