Oil steepened losses below $67 a barrel on Tuesday, after a fall of nearly 4 percent the previous day, as renewed worries over the uncertain outlook for major economies sparked a sell-off across global equity markets. The market awaits US weekly inventory data from the American Petroleum Institute due later and US government figures on Wednesday, for clues on the demand outlook for the world's top energy consumer.
The data is expected to be mixed, with lower crude inventories but rising product stocks. Investors are also cautious ahead of a two-day US Federal Reserve policy meeting on interest rates, due to start later.
US crude for July delivery expired on Monday, settling down $2.62 at $66.93 a barrel. By 0645 GMT, August crude was down 78 cents at $66.72, off a morning low of $66.37, and after settling at $67.50 on Monday. London Brent crude fell 78 cents to $66.20.
"People do not have a good fix on the outlook for oil at the moment - they have a pretty good understanding of what is happening on the production side, but the demand outlook is still being questioned," said Ben Westmore, a commodities analyst with the National Australia Bank. "Optimism over the prospects of economic recovery have already been factored into equity and commodity markets, so now people are standing back and reassessing. Oil will probably track sideways - probably between $65 and $70 - over the next week."
Monday's losses came after the World Bank said prospects for the global economy remained "unusually uncertain" as it cut 2009 growth forecasts for most economies, adding to concerns of a slower turnaround. US stocks suffered their worst one-day loss in two months, dropping the S&P 500 back into negative territory for the year on Monday, as investors reconsidered the health of the economy. Following Wall Street's rout, Japan's Nikkei average fell over 3 percent on Tuesday. Crude was also hurt by the firming US dollar, which gained against the euro and most other major currencies after Wall Street's sell-off.
A Reuters poll of analysts ahead of weekly US inventory data forecast crude stocks fell by 1.3 million barrels last week on lower imports, while gasoline stocks and distillates, including heating oil and diesel fuel, were seen rising. The API will release its weekly stockpile data at 2030 GMT, while the US Energy Information Administration will release its report on Wednesday at 1430 GMT.