FRANKFURT (MarketWatch) -- Oil futures edged lower early Friday after their 3% rise in the previous session, as modest dollar strength and indications of a lower open on Wall Street dented investor sentiment.
Crude oil for November delivery fell 27 cents to $71.42 a barrel in electronic trading on Globex. The contract earlier hit an intraday low of $70.95 a barrel.
Despite Friday's decline, "we suspect that there is more room to go on the upside, particularly if the dollar continues its descent to the 1.50 mark against the euro," said Edward Meir, analyst at MF Global, in a note to clients.
"The fundamentals do not look that positive for the moment, but the dollar is clearly masking this weakness," Meir said.
In recent trading, the dollar index (DXY 76.19, +0.22, +0.29%) , which tracks the performance of the greenback against a basket of major currencies, gained 0.3% to 76.157.
Oil prices rallied 3% on Thursday after aluminum giant Alcoa Inc. (AA 14.45, +0.10, +0.70%) reported a profit and the government said weekly jobless claims fell last week.
U.S. stock futures pointed to a weaker start Friday, as Federal Reserve Chairman Ben Bernanke said that the unprecedented loose monetary policy will have to come to an end. See Indications.
Late Thursday, Bernanke said the Fed will reverse course and tighten policy when the economic outlook improves sufficiently, though he said accommodative policy will still be needed for an extended period.
The International Energy Agency raised Friday its forecasts for global oil demand for both this year and 2010, citing the more optimistic economic estimates by the International Monetary Fund as well as strong preliminary data from the Americas and Asia. Read more.
The agency raised its expectations by 200,000 barrels a day to an average of 84.6 million barrels per day for 2009, and by 350,000 barrels per day to 86.1 million barrels per day for 2010.
Despite the increased forecasts, global oil demand in 2009 will still be 1.9% below last year's level, the Paris-based IEA said in its monthly report on Friday.
