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Oil fell to below US$90 a barrel yesterday as weaker global stock markets spurred profit taking, although expectations that Opec will resist pressure to raise output this week limited deeper losses.
US light, sweet crude for March delivery slid 84c to US$89.87 a barrel by 0438 GMT. Prices gained 14c last week after clawing back from a six-week low of US$86.11 a barrel.
Brent crude in London traded down 76c at US$90.14 a barrel.
"Traders are squaring their positions before the Opec meeting, hence there is some profit-taking," said Tetsu Emori of Japan's Astmax Futures Co Ltd.
After falling sharply early last week, as growing despair over the US economy toppled global equity markets, oil bounced back from Thursday as US legislators and the White House hammered out a US$150 billion stimulus plan.
But with prices lately moving in sync with stock markets, traders began to fear that Friday's US$1.30 surge might have been overdone after Wall Street ended the week on a down note following two days of sharp gains.
Worries over the health of the US economy also hit shares in Asia yesterday, with Japan down more than 3 per cent and Hong Kong down more than 4 per cent.
While many analysts say the risk of an economic slowdown could still take some steam out of oil prices that are not far off their record high of US$100.09, a thirst for alternative investments and Opec's resolve has limited the downside so far.
"Geopolitical risks, generally tight fundamental market conditions, and investor preferences for commodity assets are likely to continue to expose the markets to upside risk," Deutsche Bank analyst Adam Sieminski said.
Attention this week will shift to Vienna, where Opec ministers meet on February 1 to discuss production rates. Many officials have said they do not see the need to pump extra oil, despite the growing threat of recession and seasonally weak second-quarter demand, as crude inventories are comfortable.
The International Energy Agency's executive director expressed concern about the strength of the world economy and said oil producers could help the situation by pumping more.
Prices may remain hostage to the fortunes of global stock markets, which gyrated wildly last week, forcing some oil speculators to shed positions to cover margin calls.
- REUTERS
