LONDON (Dow Jones)--Crude oil futures fell nearly $2 in London Monday, pressured by a strengthening U.S. dollar and a sharp selloff in European equity markets.
'Crude is expected to seek immediate direction from stock markets and the greenback until the closely-watched (U.S. monthly) employment report (due Friday) which should provide further guidance,' said Marius Paun, an oil broker at ODL Securities in London.
The downward price correction was 'overdue,' after several weeks of gains, Paun added, given the weakness of global oil demand compared to supplies - U.S. oil inventories stand at their highest levels in over 15 years.
At 1041 GMT, the front-month May Brent contract on London"s ICE futures exchange was down $1.50 at $50.48 a barrel.
The front-month May contract on the New York Mercantile Exchange was trading $1.78 lower at $50.60 a barrel.
The ICE"s gasoil contract for April delivery was down $12.50 at $442.75 a metric ton, while Nymex gasoline for April delivery was down 319 points at 146.60 cents a gallon.
With little fundamental news emerging in the oil market, participants took cues from currencies and equities. Rising risk aversion took hold in Europe, causing a bounce in the dollar against most major currencies, which weighed on crude prices.
'Oil will run out of steam, with a stronger USD and a switch to terrible looking supply numbers washing out much of the gains from the recent demand-led price rally,' said Mark Pervan, head of commodity research at ANZ Bank in Melbourne.
Sentiment was also hit by latest concerns over the U.S. auto industry, weak Japanese industrial data and jitters ahead of this week"s G20 summit meeting in London.
Japan"s industrial output plunged 9.4% on the month in February, the fifth consecutive month of declining output, as the global economic slump sapped demand for Japanese products.
'Japan, which is the world"s third-largest oil consumer, had its factory output drop for a fifth month in January, and analysts are concerned that the demand is falling faster then expected,' said David Evans, market analyst at BetOnMarkets.com.
'Oil prices are at risk to fall back below the $50 per barrel level,' he said.
Market participants await several key data releases this week, including the U.S. ISM manufacturing index and vehicle sales Wednesday, U.S. factory orders and the European Central Bank"s policy meeting Thursday and U.S. employment data Friday.
The data will help market participants assess the state of the global economy and its repercussions on oil demand.
For now, 'physical oil fundamentals do not justify a prolonged bull market,' London-based brokerage PVM Oil Associates said in a note.
'The depressed condition of the global economy as far as the energy markets are concerned is clearly reflected in the (price) structure,' PVM said.
-By Lananh Nguyen, Dow Jones Newswires; +44 (0)20-7842-9479; lananh.nguyen@dowjones.com