Investors grew more concerned that market fundamentals do not support the high prices achieved in crude's record-setting September rally.
Oil and refined products futures typically peak in October, and while prices could still surge to new records in reaction to hurricane or inventory news later this month, many investors are betting the rally has largely run its course.
"October is traditionally the worst month to be long in crude oil and refined products," said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service.
While the low dollar has supported energy futures and other commodities in recent weeks, some analysts think market fundamentals will reassert themselves as the market's price driver this month.
"The fundamentals don't support the strength, and even the technicals suggest a correction is overdue," said Eric Wittenauer, an energy analyst at A.G. Edwards & Sons Inc. in St. Louis.
Oil inventories are high, and demand for crude is expected to fall as refineries shut down to conduct routine fall maintenance. Meanwhile, demand for gasoline is tepid at best.
"We would not rule out the possibility of an eventual disconnect between oil and U.S. dollar values," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, in a research note. "We feel that this crude price advance is definitely in a very mature stage."
Light, sweet crude for November delivery fell $1.42 to settle at $80.24 on the New York Mercantile Exchange after dipping as low as $79.45. On Friday, the contract rose to within 14 cents of hitting the Sept. 20 trading record of $83.90 a barrel before retreating sharply and closing down $1.22.
In other Monday Nymex trading, November gasoline fell 5.98 cents to settle at $1.9813 a gallon, and November heating oil lost 4.49 cents to settle at $2.1807 a gallon.
Nymex natural gas rose 18 cents to settle at $7.05 per 1,000 cubic feet, boosted by forecasts for unseasonably warm weather this week in the Midwest and along the East Coast.
In London, November Brent crude fell $1.53 to settle at $77.64 a barrel on the ICE Futures exchange.
At the pump, meanwhile, gas prices fell 0.7 cent overnight to a national average of $2.79 a gallon (74 cents a liter), according to AAA and the Oil Price Information Service. While retail prices are nearly 50 cents higher than they were a year ago, they have not risen in recent weeks, as many analysts had expected, to keep up with oil's 20 percent price surge between Aug. 22 and Sept. 20.
That could change if there is a major disruption in the oil supply chain, such as a damage from a large hurricane, Kloza said. But barring such a shock, oil and gasoline futures are likely to end October lower, he said.
Forecasters are watching three systems strung from the western to central Atlantic. But none are expected to strengthen quickly and threaten the Gulf of Mexico's critical oil and gas infrastructure.
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