NEW YORK U.S. oil prices shed early gains to end slightly lower on Monday, weighed down by extended gains in the dollar on higher Treasury yields and a slide in gasoline on speculation about a major refinery restart.
The late losses amid tepid trading volume and mixed economic data deepened oil's 3.3 percent dive on Friday, when anxiety over a possible Chinese interest rate rise triggered the biggest commodities rout in a year and a half, pulling oil off a 25-month high.
U.S. crude for December delivery fell 2 cents to settle at $84.86 a barrel, retreating from a session high of $85.77. In London, ICE expiring December Brent crude rose 36 cents to settle at $86.70 a barrel.
U.S. gasoline futures fell 1.49 cents to settle at $2.1950 a gallon, after reaching $2.2489 on speculation that ConocoPhillips (COP.N) had restarted its 238,000-barrels-per-day Bayway refinery in Linden, New Jersey.
Trading volume in gasoline was 105,300, near its 250-day average, while crude oil and heating oil futures volumes lagged about 22 and 44 percent, respectively, below their norms.
"Crude is trying to rebound after the drop on Friday, but the stronger dollar is limiting the bounce as are concerns about Europe and their effect on demand," said Phil Flynn, analyst at PFGBest Research in Chicago.
The dollar index .DXY hit a six-week high as rising U.S. bond yields boosted the appeal of U.S. assets and worries about Ireland's debt crisis persisted. <USD/>
An early lift for oil also came from news Japan's economic growth accelerated in the third quarter.
A stronger dollar can weigh on oil prices because it attracts investors away from dollar-denominated crude by making oil more expensive for users of other currencies.
Gasoline took the spotlight on Monday after U.S. economic data failed to give oil much impetus. Strong U.S. retail sales were offset by data showing New York state manufacturing fell to its lowest since April 2009.
Gasoline inventories in the New York Harbor region, delivery point for U.S. futures, have fallen, the "result of an exceptionally heavy slate of ... refinery maintenance and the labor-related curtailment of French refinery activity that has curtailed U.S. imports", Jim Ritterbusch, president at Ritterbusch & Associates, said in a research note.
Last week's late decline followed oil's break-out rally to the highest prices since the midst of the financial crisis. As crude oil jumped last week, money managers increased their net long positions to a record 189,002 as of November 9, data from the Commodity Futures Trading Commission showed.
Amrita Sen, commodities analyst at Barclays Capital, said the oil price drop was exaggerated and the steep fall not justified by demand data.
The International Energy Agency on Friday raised its 2010 oil demand growth forecast on expectations of stronger demand in China and industrialized economies. <IEA/M>
The U.S. Federal Reserve stimulus plan to buy $600 billion in Treasury bonds to boost tepid economic growth lent support to oil this month because the Fed action is expected to help oil demand and weaken the dollar.
Though China's crude oil imports surged to a record high in October, an accompanying jump in inflation had investors wary of interest rate rises or more bank reserve requirement hikes.
Last week, the People's Bank of China surprised investors by auctioning one-year bills in its open market operations at a higher yield than the previous week, with traders saying the move may mean Beijing could tighten monetary policy to ward off too much liquidity in the system.
Ahead of weekly inventory reports from industry and government, a Reuters analyst survey on Monday forecast crude stocks to have risen slightly last week, while gasoline and distillate stockpiles were expected to be lower. <EIA/S>
(Additional reporting by Gene Ramos in New York, Emma Farge and Isabel Coles in London, and Rebekah Kebede in Perth; Editing by Dale Hudson)