Oil prices fell below $110 a barrel this morning, backing further away from last week's record high as the dollar gained following an unexpected warning from the Group of Seven against excessive currency fluctuations.
US light, sweet crude oil futures for May delivery fell 48 cents a barrel to $109.66 by 6.14am after having gained 3 cents on Friday. Prices hit a record high $112.21 a barrel on Wednesday after a big fall in US crude and fuel stocks.
London Brent crude fell 52 cents to $108.23 a barrel.
After meeting on Friday, G7 finance ministers and central bankers issued a statement saying they were concerned by the sharp moves in foreign exchange markets in recent weeks. That was a marked change in their tone and was taken as a warning that the dollar was falling too fast.
The euro fell to trade at $1.5709 having slid from $1.5835 late in New York on Friday, putting pressure on other commodities such as gold, which fell 1 per cent.
Gains in oil and commodity markets have been fuelled in part by investors and speculators seeking a hedge against inflation and the falling dollar, but some analysts said this relationship may have gone as far as it can go.
"Non-fundamental factors, such as the exchange value of the US dollar, continue to play a role in setting the tone for price direction, but may have potentially peaked in terms of maximum bullish impact on crude oil prices," Martin King, analyst
with First Energy Capital, said in a report.
The growing gloom over the outlook for the US economy following a nasty earnings surprise from General Electric Co and a drop in US consumer confidence to its lowest in more than a quarter century added to the pressure on oil.
"With the headwinds in the global crude oil market starting to blow harder, the smooth sailing days for crude oil prices may be coming to an end."
The dollar had fallen on Friday, offsetting the bearish impact of the sharpest one-off cut in the International Energy Agency's global oil demand growth forecast since 2001.
The energy watchdog slashed its 2008 global oil consumption forecast by 460,000 barrels per day (bpd) to 1.27 million bpd due to high prices and the faltering US
economy, but said demand from China and the Middle East remained largely intact.
Iran, whose ongoing pursuit of a nuclear programme has created a stand-off with the West that has unsettled oil markets, hinted yesterday that it may soon make a new diplomatic push to resolve the issue.