Crude oil tumbled for an eighth day, the longest stretch in six years, as the US dollar gained against the euro, curbing investor appetite for commodities.

Oil fell to a two-month low after the greenback advanced on speculation the Federal Reserve will increase borrowing costs next year because of an improving economy. Prices have dropped 11 per cent since Dec. 1 on the US dollar's strength and rising US fuel inventories.

``This move lower has been triggered by what's happened in other markets,'' said David Kirsch, an analyst with PFC Energy in Washington, an energy strategist to companies and governments. ``Market sentiment has shifted and is now focused on the weak fundamentals.''

Crude oil for January delivery fell 67 cents, or 0.9 per cent, to $US69.87 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 7. Prices dropped 7.4 per cent this week, the biggest decline since September.

The US dollar traded at $US1.4619 per euro, up 0.8 per cent from $US1.4732 yesterday. The greenback touched $US1.4586, the highest since Oct. 5. The common currency has dropped 2.4 per cent against the US dollar over the past month.

``If the dollar continues to strengthen, we are going to see more of the financial interest leave commodities,'' said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``Fuel supplies are very high in the US and demand is weak.''

Fuel supplies

Gasoline stockpiles climbed 2.25 million barrels to 216.3 million last week, the highest since April, an Energy Department report showed on Dec. 9.

Inventories of distillate fuel, a category that includes heating oil and diesel, increased 1.62 million barrels to 167.3 million, 25 per cent higher than the five-year average for the period.

``For some traders there's anxiety that distillate supplies won't come down quickly, or at all,'' Kirsch said. ``There's the possibility of a much stronger move downward in prices.''

Crude oil stockpiles fell 3.82 million barrels to 336.1 million last week, the report showed. Inventories were 7.2 per cent higher than the five-year average for the period. Supplies at Cushing, Oklahoma, where New York-traded oil is stored, surged 8 per cent to 33.4 million barrels.

Climbing supplies at Cushing have coincided with an increasing premium for contracts in future months. This structure, known as contango, allows buyers to profit from storing oil.

Widening spread

The price of oil on the Nymex for delivery in January is $US2.08 a barrel lower than for February, the biggest differential between front-month contracts since Aug. 14.

The gains at Cushing ``aren't a big concern outside of the US, so Brent isn't taking the same hit,'' Mueller said.

Brent crude oil for January settlement on the London-based ICE Futures Europe exchange rose 2 cents to end the session at $US71.88 a barrel.

The Organization of Petroleum Exporting Countries will discuss production quotas at a meeting on Dec. 22 in Luanda, Angola. Last week Kuwait, Algeria, Libya and Qatar said that they want the group to maintain its output target of 24.845 million barrels a day for the 11 members with quotas. Iraq has no production limit.

OPEC achieved 58 per cent of its pledged oil production cuts in November, down from 60 per cent the previous month, as countries including Angola and Nigeria exceeded output targets, according to an International Energy Agency report today. Supplies from the 11 OPEC nations subject to quotas rose by 90,000 barrels a day to 26.61 million.

No lectures

``I don't think OPEC ministers are going to do very much when they meet on Dec. 22 in Angola,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``The IEA said all 11 members with quotas were producing above quota, so I don't expect there to be any lectures behind closed doors on compliance. Everyone is doing it.''

``I'm expecting energy to fall through the first quarter and the first half of the second quarter,'' said Bill Adams, chief energy trader at Intermarkt Investment Strategists, a risk management company in Zurich. ``Capacity hasn't tapered off in any meaningful way.''

Iraq is auctioning contracts to develop oil reserves large enough to supply the world for more than a year. Total SA, OAO Lukoil and Royal Dutch Shell Plc are among 40 oil companies prepared to bid today and tomorrow for rights to 10 projects encompassing 41 billion barrels of crude, a third of the country's total deposits.

`Lid on prices'

``Even at half the scale forecast, it will make Iraq the second-largest producer in OPEC,'' Edward Morse, head of economic research at LCM Commodities LLC, said on Bloomberg Television today. ``It will have the effect of really putting a lid on prices, in fact bringing them down.''

Iraq produced 2.4 million barrels of crude oil a day in November, making it OPEC's third-biggest producer after Saudi Arabia and Iran, according to data compiled by Bloomberg News.

Oil volume in electronic trading on the Nymex was 595,115 contracts as of 3:12 p.m. in New York. Volume totaled 827,123 contracts yesterday, 38 per cent above the average of the past three months. Open interest was 1.2 million contracts.