Oil prices finished at a new three-month low on Monday after briefly dropping below $US113 a barrel, as the US dollar extended its rebound and more signs emerged that China's energy demand could be levelling off.
In earlier trading, oil fluctuated as traders monitored the conflict between Russia and Georgia that some believe could disrupt supplies. But those worries faded to the background as the US dollar's recovery accelerated, and as the energy market focused on a report from China that the country's crude oil imports in July were down 7 per cent from last year.
"Now we're focused on the weak demand side of the equation," said Phil Flynn, analyst at Alaron Trading Corp in Chicago. "There was this thought process that the high price of energy didn't matter to China and other countries - but we're finding that that's not the case."
After falling nearly $US10 a barrel last week, light, sweet crude for September delivery fell another 75 cents to settle at $US114.45 a barrel on the New York Mercantile Exchange. It was the lowest close since May 1.
Crude, which fell as low as $US112.72 a barrel during the session, has been plummeting in recent weeks from its record of $US147.27 on July 11.
"The market's still kind of reeling," said Darin Newsom, senior analyst at DTN in Omaha, Nebraska. He said more signs of economic slowdown could take prices back below $US100 a barrel - a level not seen since early April.
The euro fell to $1.4925, the pound fell to $1.9117, and the US dollar held at around 110 yen. A weak dollar helped boost oil prices earlier this year, because dollar-denominated commodities are often used as hedges against inflation and a falling US currency. But gains in the currency are reversing that trend.
Peter Beutel, president of the energy risk management firm Cameron Hanover, wrote in a research note that investors appear to be selling commodities to get back into stocks, which traded higher by midday trading Monday. On Friday, the Dow Jones industrial average surged more than 300 points.
Beutel noted in his Monday note that crude oil open interest - or the number of futures contracts that are not closed or delivered on a given day - has sunk by more than 100,000 contracts since the record high in mid-July, a sign of heavy liquidation.
Crude, gasoline and heating oil prices had traded higher in earlier trading on concerns that shipments from two Georgian ports could be hindered by the violence in the region.
The South Ossetia province broke away from Georgian control in 1992. Georgia, whose troops have been trained by American soldiers, began an offensive to regain control over South Ossetia last week. Georgia says it was responding to attacks by separatists. In response, Russia launched attacks on Georgian troops.
On Monday, Russia opened a second front of fighting in Georgia, and the world's seven largest economic powers called on Russia to accept an immediate cease-fire.
"(Russian forces) came to the central route and cut off connections between western and eastern Georgia," Georgian President Mikhail Saakashvili told a national security meeting.
