Nymex crude oil futures were weaker Friday, consolidating just below $80 a barrel as investor appetite for risk waned.
Crude rallied more than $2 in the wake of better-than-expected U.S. gross domestic product data in Thursday's session but MF Global analyst Ed Meir urged caution.
"We would argue for a slight pause here before switching allegiances completely to the buy side. We have trouble seeing how investors are going to reconcile a reviving U.S. economy with a weaker dollar," said Meir.
The front-month December Brent contract on London's ICE futures exchange was down $0.71 at $77.33 a barrel.
The front-month December contract on the New York Mercantile Exchange was trading $0.57 lower at $79.30 a barrel.
The ICE's gasoil contract for November delivery was $9.75 lower at $634.25 a metric ton, while Nymex gasoline for November delivery was down 190 points at 200 cents a gallon.
Energy market traders paused to reflect on the real outlook for global economic recovery amid of wave of optimism on recession recovery after U.S. economic data showed some evidence of return to growth yesterday.
The market looks ahead to more data later Friday with the U.S. October Chicago Purchasing Managers Index published at 1345 GMT, and U.S. October Consumer Confidence released at 1355 GMT.
"Oil still looks to be overpriced and an increase in GDP after four quarters of decreases does not mean the U.S., or the rest of the world, is out of the woods yet," said JBC Energy in a note to the market.
Participants have focused even more intently than ever on U.S. macro-economic data this week to try second guess the Federal Reserve's next move. It meets next week and markets are looking for any signal on rates or a revision of fiscal stimulus measures.
However, while positive figures encourage more players in to the futures market it remains doubtful they will lead to a substantive pick-up in demand for physical oil products soon.
The fundamental picture is bleak with three areas that even the most bullish in the market can't keep ignoring -- U.S. stocks, spare capacity at Organization of Petroleum Exporting Countries members and floating storage.
Although we have seen draws for stocks on both sides of the Atlantic Basin in recent weeks U.S. inventories of both crude and products remain near five-year highs, even a tremendous surge in demand from industrial buyers would take some time to dent this stockpile.
OPEC is also thought to have about six million barrels a day of spare capacity and the latest reports indicate compliance has fallen to between 58% and 62%.
And finally floating storage, as October draws to a close, JBC Energy estimated that between 40 million and 45 million barrels of crude are being held in floating storage, similar to September levels. For distillates it saw a rise of at least 20 million barrels to 85 million-95 million barrels.
