Oil retreated on Monday, with both U.S. and Brent crude futures slipping over a dollar, after Libyan rebels regained control of key oil towns and the dollar firmed on hawkish comments from a U.S. central banker.
U.S. crude was down $1.66 to $103.74 a barrel at 1332 GMT after earlier dipping to $103.60. Brent crude for May was down 94 cents to $114.65 a barrel, after slipping to an intraday low of $114.55.
Michael Hewson, an analyst at CMC Markets, attributed the fall to the slightly stronger dollar <.DXY> following comments late last week from Charles Plosser, president of the Philadelphia Federal Reserve.
A stronger dollar <.DXY> means that commodities priced in dollars are more expensive for those using other currencies.
Plosser said the U.S. central bank would have to reverse its easy money policy in the not-too-distant future to avoid sowing the seeds of inflation.
Data released on Monday seemed to vindicate Plosser's comments as high food and energy prices pushed up U.S. inflation in February.
The Commerce Department said the personal consumption expenditures price index rose 0.4 percent, the fastest since June 2009, after gaining 0.3 percent in January.
This move lower in oil prices looks to be largely dollar driven because nothing has really changed from a Middle East perspective, Hewson said. That's not a situation that will go away any time soon.
Rebels regained control of all the main oil terminals in the eastern half of Libya over the weekend: Es Sider, Ras Lanuf, Brega, Zueitina and Tobruk. They are now advancing on leader Muammar Gaddafi's hometown of Sirte, heading west along the main coastal road.
A Libyan rebel official said on Sunday Gulf oil producer Qatar had agreed to market crude oil produced from east Libyan fields no longer in Muammar Gaddafi's control.
Qatar has become the first Arab country to recognize Libya's rebels as the people's sole legitimate representative, in a move that may presage similar moves from other Gulf states.
These are positive developments, which are negative for oil prices potentially, said Olivier Jakob, an oil analyst at Petromatrix.
Output from Libya oilfields controlled by rebels was running at about 100,000 to 130,000 barrels per day (bpd), which could be increased to 300,000 bpd, Ali Tarhouni, a rebel official in charge of economic, financial and oil matters, said on Sunday. Libya was pumping about 1.6 million bpd before the rebellion.
But some analysts and traders are not persuaded that things will return to normal quickly.
While Libyan rebels claim to be able to get the exports out of the country within a week, we remain skeptical, said Amrita Sen, oil analyst at Barclays Capital in a note.
There remains a significant legal and contractual basis to all oil trade, and before a unitary government emerges it may be extremely difficult to get a steady flow of oil out of Libya.
Christopher Bellew, an oil trader at Bache Commodities, was also skeptical of any short-term improvement in Libya.
What the outcome of this war will be is by no means clear. If they do manage to oust Gaddafi -- and it's that expectation that is causing prices to fall -- it might not be a clean change of regime. I just don't imagine that everybody's going to suddenly settle down.
Hewson also suggested that concerns about sovereign debt in Europe could be weighing on sentiment with respect to future demand. Will a default in Greece or Portugal affect growth in the eurozone or demand for crude oil?
In Syria, forces opened fire to disperse hundreds of protesters in Deraa calling for an end to emergency laws, but demonstrators regrouped despite a heavy troop deployment, a witness said.
(With additional reporting by Alejandro Barbajosa in Singapore; editing by Keiron Henderson)