NEW YORK (CNNMoney.com) -- Oil fell for the third straight trading day, as the threat of interest rate hikes tarnished hopes of a global economic recovery and sent the dollar higher against the euro.
What prices are doing: Prices for April crude oil contracts, which expire on Monday, fell 99 cents to $79.70 a barrel. Crude prices for May delivery fell $1.00 to $79.97 a barrel.
What's moving the market: Prices plummeted after India's central bank hiked interest rates late Friday, stoking fresh fears that low rates will be short lived, stamping out the economic recovery.
The Reserve Bank of India unexpectedly raised key interest rates by 0.25%. The decision was made in an effort to "anchor inflationary expectations and contain inflation going forward," said G. Raghuraj, the Bank's Deputy General Manager, in a statement.
This helped fuel the dollar's rise against the euro, and kept a lid on gains in the stock market in early trading.
The greenback traded up about 0.30% against the euro to $1.349, near a 3-week high against the European currency. A stronger dollar makes crude, which is priced in U.S. dollars, more expensive for foreign investors. That in turn puts downward pressure on demand and prices.
The Dow Jones Industrial Average (INDU), which investors view as an indicator of economic strength or weakness, was up just under 40 points in early trading.
What analysts are saying: "The landscape appears to have changed over the weekend," said James Cordier, president of Liberty Trading Group. "A stronger dollar, political risk, and a lower stock market are causing an exodus out of the oil pit today."
Emerging market economies such as India and China have seen strong economic growth recently, pushing up oil demand. But that has left India with inflation rates hovering around 10% a year, according to Cordier.
"The interest rate increase is a very powerful factor" affecting oil prices, he said. "It's a reversal of [the low interest rate policies] we've been seeing."
Still, many analysts expect global demand to continue to rise. According to research firm Platt's, China's oil demand reached an historic high in February, up 16.6% from a year ago.
But the threat of changes in monetary policy will stifle oil prices in the short term, as large emerging markets attempt to balance growth with inflationary pressures.
"The biggest nations will try to slow their economies, and that's a barometer for oil demand," said Cordier.
Looking ahead: Traders will be keeping an eye on weekly economic growth indicators like crude inventories, employment data, and new homes sales this week.
