Oil falls on weak US demand, Nigeria, dollar

Oil fell below $112 a barrel today as Nigerian supply concerns eased, the dollar firmed and US demand showed further signs of weakness.

US crude traded down $1.66 to $111.80 a barrel in the third straight day of losses. London's Brent fell $1.36 to $110.00 a barrel.

Oil has fallen from record highs near $120 hit last month as demand in top consumer the US sags under the weight of surging fuel prices and wider economic problems.

US oil demand fell 7% in February compared with year-ago levels, according to a report from the US Energy Information Administration released this week.

Gasoline use in California, the biggest US market for the fuel fell 4.5% compared with 2007, the state reported.

London gas oil prices rushed to fresh records over the past week due to a two-day strike at Scotland's Grangemouth refinery, which also forced some North Sea oil production to be shut in. Supply worries have eased as the refinery restarted.

In Nigeria, Exxon Mobil reached a deal with union workers to end an 8-day strike which had shut in almost all of the 800 000 barrels per day the US oil major pumps in the West African country. The company said it was resuming production.

Gains in the US dollar also helped push crude lower, as investors focused on positive aspects of US spending and core inflation data, suggesting the Federal Reserve's monetary easing could slow.

Interest rate cuts can boost liquidity in the financial markets, brighten the outlook for economic activity and demand, and weaken the dollar against other currencies, which tends to bolster commodity prices.

The weak US dollar helped fuel oil's recent rally to record highs after strong demand from emerging markets such as China and tepid supply growth helped increase prices five-fold since 2002. –Reuters