Oil prices fell below $72 a barrel in thin trading on Monday, pressured by easing Asian stocks and comments by Asia's No. 1 refiner Sinopec <0386.HK> that diesel demand China had not completely recovered.
U.S. crude for October delivery fell 40 cents to $71.64 a barrel by 0540 GMT (1:40 a.m. EDT). The contract fell 43 cents to settle at $72.04 a barrel on Friday.
London Brent crude fell 41 cents to $70.91 a barrel.
The market is a little nervous after the slide on the Shanghai stocks market, said Michelle Kwek, an analyst at Informa Global Markets in Singapore.
Risk appetite is down and that's prompting traders to take profit in oil and other commodities.
Asian stocks eased on Monday, pulling further away from 13-month highs hit last week, as investors worried prices may have raced too far ahead of economic fundamentals, with shares in China feeling supply pressures ahead of a string of IPOs.
The Shanghai Composite Index <.SSEC>, China's key stock index extended the previous session's decline and fell as much as 3 percent on Monday, weighed by fresh signs the stock regulator was pushing more shares, including those from a new second board, into the market.
Oil prices were also pressured by bearish comments from Sinopec, Asia's top refiner and China's second-largest oil and gas producer, that diesel demand in China continues to lag economic recovery, with fuel sales so far this year still below the rates seen a year ago.
Lower risk appetite also lent support to the U.S. dollar, which extended a bounce seen late last week and gained in thin conditions on Monday, with traders covering short positions ahead of a Federal Reserve monetary policy meet and a Group of 20 Summit.
Oil rose 3.9 percent last week, thanks to U.S. government data showing a larger-than-expected draw in crude stocks, heavy losses in the U.S. dollar and rallying stock markets on the back of growing ebullience the world economy was en route to recovery after being wrecked by the worst financial crisis since the Great Depression.
Though crude prices have only gained about 3 percent so far this quarter, after shooting up 40 percent in the June quarter, some analysts said oil prices were set to move higher in coming weeks amid an economic recovery and seasonal winter demand.
FACTS Energy Group said in a report on Friday it expected Asia's oil demand to revert to positive growth of around 340,000 barrels per day (bpd) on the year, after five quarters of negative growth, and China and India will be the key drivers.
Asian petroleum demand is expected to grow at around 885,000 bod in 2010, on the back of a recovery in the regional economy compared to a weak 2009 baseline, FACTS' Lim Jit Yang said in the report.
As a result, this growth will exceed our baseline regional growth expectation of some 600,000-800,000 bpd during 'normal' times.
Separately, money managers boosted net long positions in the NYMEX crude oil market last week in a bet prices would rise, the Commodity Futures Trading Commission said in a report on Friday.
(Reporting by Fayen Wong; Editing by Clarence Fernandez)