Oil below $78 on warmer weather, dollar

 @ibtimes
on January 19 2010 12:24 PM

Oil fell below $78 a barrel on Tuesday, extending a week-long losing streak as mild weather and a stronger dollar weighed on prices.

U.S. crude fell 16 cents to $77.84 a barrel by 12:08 p.m. EST (1708 GMT). The New York Mercantile Exchange will combine prices for Monday and Tuesday into a single trading session because of the Martin Luther King Day holiday.

Brent crude dropped by 66 cents to $76.44 a barrel.

The petroleum markets continue to look shaky with this week's warmer than normal temperatures undercutting heating demand and monthly reports from the (U.S.) Department of Energy, International Energy Agency, and OPEC all failing to give the market a fresh reason to probe the upside, said Tim Evans, energy analyst for Citi Futures Perspective.

U.S. heating fuel demand is expected to be well below normal this week, according to the National Weather Service.

The Organization of the Petroleum Exporting Countries (OPEC) said on Tuesday that oil inventories are high enough to absorb any increase in winter fuel demand.

The group also cut its forecast for demand for its crude by 20,000 barrels per day to 28.59 million bpd in its monthly report, while leaving its forecast for world oil demand growth unchanged at 820,000 bpd.

Last week, the U.S. Department of Energy and the International Energy Agency, both trimmed their oil demand growth forecasts for 2010.

A stronger dollar also pressured oil prices, with the euro falling to a four-week low against the dollar.

A rise in the value of the dollar often discourages investor interest in dollar-denominated commodities such as oil.

A rising dollar helped weigh on crude prices. German consumer confidence declined more than expected which benefited the dollar at the expense of the euro. Sentiment appears to have swung toward pessimism in the Euro zone, said Mike Fitzpatrick, vice president at MF Global in New York.

Japan Airlines Corp's <9205.T> bankruptcy filing on Tuesday may also have had some impact on oil prices, some analysts said. The company said it would cut more than 15,000 jobs and unprofitable routes.

A rise in U.S. stocks on Tuesday failed to bolster crude prices. Wall Street rose, as investors bet that a Massachusetts Senate race could derail President Obama's healthcare reform plan.<.N>

(Additional reporting by Robert Gibbons and Gene Ramos in New York, Ikuko Kao in London, Alejandro Barbajosa in Singapore; Editing by Marguerita Choy)

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