Oil fell to around $71 a barrel on Monday, extending its retreat from a near eight-month high as the dollar firmed and analysts said the market had rallied too quickly.
Crude on Thursday settled at $72.68, the highest since October 20 and fell on Friday, but some analysts still saw the market as overvalued. The rising dollar sparked losses across commodity markets.
From a fundamental point of view, oil prices have already done more than their fair share and are due for a modest setback despite the technicals suggesting otherwise, said Edward Meir of MF Global.
U.S. crude fell $1.02 to $71.02 a barrel by 9:43 a.m. EDT, having earlier fallen as low as $70.71. Brent crude for July, which expires later in the day, lost $1.13 to $69.79.
Oil has risen from around $51 at the end of April, partly on expectations of economic recovery.
The head of the International Monetary Fund, Dominique Strauss-Kahn, sounded a cautious tone on Monday, saying the worst of the global crisis was not yet over.
Post-election political turmoil in Iran , a major oil exporter, did not halt the price correction that many analysts say is justified given the extent of the rally, falling global demand and high inventories.
Energy markets will likely gloss over this event unimpressed, Meir said, adding Certainly the events in Iran could postpone a correction if they take a turn for the worse.
Oil prices have been buoyed by hopes of economic recovery. At the same time, politicians in consumer countries have expressed concern the rise could threaten their economies.
French Economy Minister Christine Lagarde said G8 ministers wanted measures to curb volatility in oil markets, which put at risk growing signs that their economies were heading toward recovery.
In Nigeria, the main militant group said on Monday it had sabotaged an oil pumping station in the Niger Delta operated by Chevron
(Additional reporting by Chua Baizhen in Singapore; editing by James Jukwey)