Oil prices fell on Monday following their biggest weekly gain in two months, tracking US and European equities lower as revived concerns about the eurozone banking sector kept uncertainty about economic recovery and oil demand in focus. An early push to a nearly two-week high above $77 faded when there was no follow-through.
Trading sources said weak refined products futures helped pull crude prices back and reflected investor worries about high US petroleum inventories. US crude for November delivery fell 75 cents, or 0.98 percent, to $75.74 per barrel by 1:36 pm EDT (1736 GMT). It traded from $75.52 to $77.17, its highest since $77.99 on September 14 when a pipeline carrying Canadian crude oil to the United States shut down and boosted prices.
ICE Brent November crude fell 82 cents to $78.05 a barrel. "Seems like the stock market was the driver; it turned lower and oil did also. Crude has wanted to go lower but the Fed, or the stock market or the dollar helped lift oil last week, so when one of those weakens crude is a follower right now," said Phil Flynn, analyst at PFGBest Research in Chicago.
US stocks fell on Monday, slipping after four weeks of gains as revived concern about eurozone debt offset optimism about equities values resulting from a flurry of merger and acquisition activity. Worries about eurozone debt resurfaced after credit agency Moody's slashed the rating on some lower-grade debt of Anglo Irish Bank.
Oil prices posted their best weekly gain in two months last week as the dollar slumped and investors bet that the US Federal Reserve will pump billions of dollars into the financial system to support a faltering economic recovery. After the Fed last week indicated a willingness to support a faltering economic recovery, the Chicago Federal Reserve on Monday said its Midwest manufacturing index fell in August versus July.
Oil prices have traded largely in a range of $70 to $80 a barrel since the beginning of May, seesawing amid mixed economic indicators and swings on global stock markets. But the correlation to equities markets has not been as strong recently. A Reuters survey of 28 analysts highlighted oil's tight trading range as consensus forecasts for the fourth quarter of this year and 2011 were revised slightly lower due to weak demand from developed nations.
With Thursday's expiration of October refined products contracts approaching, US heating oil futures, the distillate benchmark, fell 2.44 cents, or 1.15 percent, to $2.1062 a gallon. October gasoline futures fell 1.64 cents, or 0.84 percent, to $1.9307 a gallon.
Crack spreads, or refiner profit margins measured against the cost of crude oil, also slipped on Monday. The gasoline spread fell below $5 a barrel, while the heating oil spread stayed below $14 a barrel. US total petroleum inventories have bulged, hitting their highest levels last week since weekly records began in 1990, according to the Energy Information Administration. US crude oil, total distillate and gasoline stockpiles all remain above year-ago levels as investor focus turns to the winter heating fuel season after the end of the summer driving season in the United States.