Oil falls by 2% amid caution over global recovery hopes

PRICE FALLS: Oil fell towards $49 on Monday. (Getty Images)

Oil fell as much as two percent towards $49 a barrel on Monday, weighed down by a rising US dollar and growing caution about the pace of any global economic recovery.

A warning by US President Barack Obama over the weekend that the country's economy remains under strain, and moves by his top economic adviser to temper hopes for a speedy recovery, dampened sentiment and increased risk aversion.

US crude for May delivery was down 88 cents to $49.45 a barrel by 06.33am UAE time, after having earlier fallen by $1.03.

London Brent crude fell 73 cents to $52.62.

"The pullback is largely due to a stronger US dollar. There is also increased risk aversion following cautious comments from US officials over the weekend that the economy still faced risks," said Michelle Kwek, an analyst at Informa Global Markets in Singapore.

The euro struck a one-month low against the dollar and three-week trough versus the yen on Monday after comments by European Central Bank governor Jean-Claude Trichet were taken as bearish.

"Investors have probably been too optimistic on the strength of the global economy over the past two weeks and now they are using the opportunity to take profits," Kwek said.

Oil's gains towards the end of last week were buoyed by optimism that the US economy was recovering, with a survey showing that US consumer confidence rebounded in April to the highest levels since September.

But President Obama said on Sunday that the U.S. economy remained under strain, and his top economic adviser Paul Volcker cautioned that the country's economic recovery would be a "long slog".

A torrent of possibly poor corporate earnings this week is also threatening Wall Street's recent impressive rally.

The International Monetary Fund was also sounding a cautious note, with managing director Dominique Strauss-Kahn saying the agency would cut its global economic forecasts in the coming week, although he expected a recovery to start in the first half of next year.

Oil has plummetted nearly $100 from its peak of over $147 last July, but has flattened out to trade around $50 for most of this month, with implied volatility falling to a six-month low on Friday.

OPEC member Algeria though gave warning that oil prices could fall further given weak demand and rising crude stocks, which in the United States have reached their highest level in nearly 19 years.

OPEC will be taking a big risk if it does not make a further adjustment to oil supply, a newspaper quoted Algerian Energy and Mines Minister Chakib Khelil as saying on Sunday. (Reuters)

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