Oil drops below $73 on dollar, inventories

An employee fills a car with petrol at a gas station in Jammu July 1, 2009.

NEW YORK (Reuters) - Oil prices fell more than $1 to below $73 a barrel on Tuesday, extending losses to a fifth straight session as the dollar strengthened and demand concerns weighed on prices.

U.S. crude for January delivery fell $1.31 to settle at $72.62, down $1.31. Oil has fallen $5.75, or 7.3 percent, since prices last rose on December 1. In London, Brent crude fell $1.24 to settle at $75.19.

The last five days' losses are the biggest since prices fell 7.9 percent on September 23 and September 24.

The dollar gained against a basket of currencies .DXY on Tuesday, making dollar-denominated commodities more expensive for holders of other units.

A downward revision to the U.S. government's forecast for 2010 global demand growth also pressured crude.

The U.S. Energy Information Administration's monthly short-term outlook lowered its forecast for increased demand in 2010, and its forecast for OPEC and non-OPEC production was higher.

"People were looking for U.S. oil demand to be higher and so, with the cut in the EIA forecast and a smaller increase overall, that's a little disappointing," Mark Waggoner, president, Excel Futures, Huntington Beach, California.

U.S. stocks fell on Tuesday after a disappointing outlook from 3M Co (MMM.N) and a second straight month of falling domestic sales at McDonald's Corp (MCD.N) triggered concern about consumer spending. .N

Oil markets have looked to wider economic data and equity markets this year for a sign of a turnaround in the economy that could bolster crude demand and drain high inventory levels in key consumers, such as the United States.

Crude oil stocks at the giant storage hub in Cushing, Oklahoma -- the delivery point for the New York Mercantile Exchange's oil futures contract -- have swelled, deepening the discount of front-month crude futures to second-month futures.

This market condition, called a contango, encourages more storage onshore and offshore, and drags down prices further.

"Cushing storage are the leading reason January prices (are) lower and the continuing expansion of the contango has traders worries about the likelihood of further increases in floating storage; most on-land storage is already full," said Peter Beutel, president of Cameron Hanover in New Canaan, Connecticut.

Weekly U.S. inventory data from the American Petroleum Institute, due out at 4:30 p.m. EST (2130 GMT) Tuesday, was expected to show a 600,000-barrel build in crude stocks in the week to December 4 and a rise of 1.5 million barrels in gasoline inventories. <EIA/S> Weekly data from the U.S. Energy Information Administration was due out on Wednesday morning.

Oil prices have rallied to a high for the year of $82 a barrel, reached in October, from below $33 in December 2008, even though fundamentals of supply, demand and inventories are bearish in the view of many analysts.

(Additional reporting by Matthew Robinson, Gene Ramos and Robert Gibbons in New York; Alex Lawler in London; Editing by Walter Bagley and Lisa Shumaker)