Oil drops below $80, extending losses

Oil prices dropped below $80 a barrel Monday, with a stronger dollar helping to extend losses from Friday as a monthlong rally fizzled out.

By early afternoon in Europe, benchmark crude for April delivery was down $1.27 to $79.41 a barrel in electronic trading on the New York Mercantile Exchange. The April contract -- which expires later Monday -- dropped $1.52 to settle at $80.68 a barrel on Friday.

Oil has bounced between $70 and $85 for most of the last nine months as the global economy recovers from last year's recession. Crude jumped to $83 a barrel last week from $69 early last month on expectations consumer demand will begin to pick up, but U.S. oil inventories have continued to grow in recent weeks.

"The supply overhang continues and that makes it difficult to sustain oil above $80," said Victor Shum, an energy analyst with consultancy Purvin & Gertz. "Global demand is slowly recovering but remains fragile."

Crude demand from China, the world's second-largest oil consumer, soared 17 percent in February from a year earlier, according to analysis by Platts, the energy information arm of McGraw-Hill Cos.

Prices this year have also been supported by low interest rates and investors using commodities such as oil as an asset class.

"We have a lot of cheap money chasing returns," Shum said.

The stronger dollar, however, pushed oil prices down by making crude for expensive for investors in other currencies.

The euro was down to $1.3514 Monday from $1.3536 late Friday in New York, while the British pound declined to $1.4983 from $1.5020.

"Investors were talking about the continuing lack of any solid plan for Greece's debt, and that contributed to a continuing advance in the dollar, which helped press oil prices lower," said U.S. energy consultancy Cameron Hanover.

Edward Meir, senior commodity analyst at MF Global in New York, said this could be a pivotal week for the euro, if Greece decides to seeks aid from the IMF, "should they not receive a credible financial package from the EU."

In other Nymex trading in April contracts, heating oil fell 3.25 cents to $2.0442 a gallon, and gasoline dropped 3.07 cents to $2.2249 a gallon. Natural gas slid 8.7 cents to $4.082 per 1,000 cubic feet.

In London, Brent crude was down $1.09 at $78.79 on the ICE futures exchange.