Oil prices fell by almost 3.5 percent toward $69 a barrel on Monday as further signs of weak fuel demand raised expectations that prices may have raced ahead of the nascent economic recovery.
Oil prices have more than doubled since hitting lows near $30 a barrel at the height of the global economic crisis, but the market has come under pressure since touching a year high of $75 a barrel almost a month ago.
There will be little or no sustained upward pressure on oil prices until global economic recovery is firmly established and reviving oil demand begins to draw down bulging oil inventories, analysts at the Center for Global Energy Studies said in their monthly oil market report on Monday.
Even next year prices are unlikely to rise much unless clear signals emerge that the world is pulling out of recession in a sustainable fashion.
U.S. crude for October delivery fell $2.43 to $69.61 a barrel by 1550 GMT, having earlier hit a low of $69.10. London Brent crude fell $2.61 to $68.71 a barrel.
Oil stockpiles have risen around the world as the global economic crisis has cut sharply into energy demand.
The International Energy Agency said on Monday world electricity output was likely to drop this year for the first time since 1945, while Sinopec <0386HK.>, Asia's top oil refiner, said demand for industrial fuels remains depressed in China, the world's second largest oil consumer.
Global oil demand is only slowly picking up and as of right now not at a fast enough pace to move overstocked inventories into a destocking pattern that will push inventories down to more normal levels, said Dominick Chirichella, senior partner at Energy Management Institute.
Other markets also weighed on oil on Monday, with investors turning cautious ahead of a Federal Reserve meeting and Group of 20 summit this week. Equities were lower across the globe due to uncertainty about the economic outlook.
Oil prices have followed moves in equity markets in recent months as traders try to gauge the timing of a pick-up in global energy demand expected to coincide with the world's emergence from the biggest economic slowdown since the 1930s.
Lower risk appetite also helped the dollar extend a rebound from a one-year low hit against the euro last week. A stronger dollar tends to pressure commodities priced in the U.S. currency as they become more expensive for holders of other currencies.
Separately, money managers boosted net long positions in the New York Mercantile Exchange crude oil market last week in a bet prices would rise, the Commodity Futures Trading Commission said in a report on Friday.
(Additional reporting by Fayen Wong in Perth and Richard Valdmanis and Gene Ramos in New York; editing by William Hardy)