LONDON - Oil fell below $US82 a barrel, snapping a three-day rally as mounting doubts about the size and timing of US economic stimulus pushed up the dollar.
Negative correlation between the dollar and the price of oil was near its strongest level in 14 months in the run-up to a meeting on November 2-3, when the Federal Reserve is expected to make clear the details of how much money it will pump into the US economy.
A stronger dollar can pressure oil prices by making dollar-denominated oil more expensive to users of other currencies and by pulling investment into other markets from commodities, which are viewed as riskier bets.
US crude for December fell 69 cents to $US81.86 a barrel at 1046 GMT, down three per cent from a five-month high of $US84.43 reached on October 7. ICE Brent fell 66 cents to $US83.00.
"I think there's a concern that maybe next week's quantitative easing or stimulus package from the Fed may not be as big as the markets have probably been factoring in," CMC Markets market strategist James Hughes said.
Doubts that financial markets may have priced in too much QE were stoked by a Wall Street Journal report on Wednesday, which said the US Federal Reserve's Treasury bond-buying programme is likely to be worth "a few hundred billion dollars".
Investors had been counting on between $US500 billion and $US1 trillion to help the economic recovery.
A Reuters poll of 33 analysts and industry experts predicted that oil would average over $US83 next year as US monetary stimulus fed through to the economy and boosted fuel demand.
Inventories
Data from the American Petroleum Institute showing higher-than-expected US crude stocks, which jumped by 6.4 million barrels in the week to October 22, also weighed on the oil price. The figure was over six times that expected by a Reuters poll.
"I think we're going to be waiting for the DOE (Department of Energy) stats to provide some more direction, because the API stocks did show a fairly large build in crude oil inventories," said Amrita Sen at Barclay's Capital.
Government statistics on US inventories and demand from the Energy Information Administration are due at 1430 GMT.
Distillate inventory statistics were also bearish, showing an increase of 818,000 barrels, compared with an expected drop of 1.5 million. But gasoline posted a surprise decline of 1.8 million barrels, compared with a projected 200,000 barrel gain.
Investors were also awaiting US data on durable goods (1230 GMT) and new homes sales (1400 GMT) for the latest indication of economic recovery in one of the world's largest fuel consumers.
Oil refinery strikes in protest against French President Nicolas Sarkozy's unpopular pension reform eased on Tuesday, with walkouts ending at several plants and unions sounding more open to talks with employers.
