Oil slipped below $66 a barrel on Monday, extending last week's decline of 8.4 percent, as investors focused on the halting economic recovery in the United States and shrugged off escalating tension between Iran and the West. Gains for the US dollar against the euro put pressure on oil, which had started the day higher on the back of Iran's test firing of missiles over the weekend.
Iran's provocative act came just days before it is due to hold rare talks with world powers about its nuclear ambitions, and after Tehran last week said it was building a second uranium enrichment plant. US crude for November deliver fell 43 cents to $65.59 a barrel by 0643 GMT, after having risen by as much as 64 cents in early trade. The contract settled up 13 cents at $66.02 on Friday.
London Brent crude fell 43 cents to $64.68 a barrel. "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, an analyst at the Commonwealth Bank of Australia. Oil prices suffered their worst weekly decline in around 2-1/2 months last week, pressured by government data showing US crude oil inventories had risen to some 9 percent above five-year average levels.
While there are risks that Western calls for tougher UN sanctions against Iran could lead to a supply disruption - with Tehran having threatened in late 2008 to block the key Straits of Homuz oil route - nagging concerns about sluggish demand, reinforced by some lacklustre economic data from the United States last week, will still be investors' primary concern.
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 on Friday. With investor sentiment dented by the weak US data, the MSCI benchmark of Asia-Pacific shares outside Japan fell 1.2 percent, while Japan's Nikkei average lost 2.5 percent.
The losses were also exacerbated by some foreign investors were also pulling funds out of Asian stock markets before quarter-end, partially reversing some of the heavy buying that has taken place over the past six months. With a broad array of economic indicators on tap this week, including US September non-farm payrolls and final second-quarter gross domestic product, analysts said oil prices could see volatile trading. Money managers boosted net long positions in the NYMEX crude oil market last week in a bet prices would rise, the Commodity Futures Trading Commission said in a report on Friday.