* Dollar rallies; reverses early gains
* IEA monthly report sees 2010 demand acceleration
* High U.S. stocks and contango in focus
(Updates prices, adds retail sales)
By Emma Farge
LONDON, Dec 11 (Reuters) - Oil hovered above the key $70 a
barrel mark after seven days of falls as a stronger dollar
tempered an early rally sparked by higher global demand growth
forecasts and strong Chinese industrial output.
U.S. crude for January delivery <CLc1> fell 30 cents to
$70.24 a barrel by 1445 GMT, after falling below the $70 level
the previous day for the first time in two months. Over the past
seven trading days, front month crude has sunk almost $7 or 10
percent.
Brent crude futures <LC0c1> fell 19 cents to $71.67 a
barrel.
The U.S. dollar rallied on Friday after higher-than-expected
U.S. retail sales in November boosted the currency, reversing
early gains on oil. [] []
A cheap dollar tends to drive oil higher as it makes it
more attractive for buyers using other currencies.
"The dollar is at key levels and it will remain a
significant factor," said Petromatrix analyst Olivier Jakob.
"It was a dollar bubble that inflated prices from $65 up to
$82 a barrel," he added, referring to the oil rally up to the
2009 high in October.
This quarter, some investors have been shifting money out of
the sinking dollar and into tangible assets such as oil and
gold, and this helped to support oil in a band between $75-$82 a
barrel in October and November.
But prices broke below this range earlier this week, leaving
a more uncertain outlook for oil.
Earlier, a forecast from the International Energy Agency
(IEA) showed that world oil demand will rise by almost 1.5
million barrels per day (bpd) in 2010 to 86.3 million bpd and
the rate of demand growth will also accelerate. []
The report came after the U.S. Energy Information
Administration revised its own world oil demand for 2009 lower
on Tuesday []
Strong industrial growth figures out of China also supported
prices earlier.
China's November industrial output surged to its strongest
since June 2007, underscoring the economy's robust recovery from
the global downturn, and analysts expected the trend to continue
in coming months. []
OVERSUPPLY
For now, analysts are citing $70 a barrel as a key support
level but say oversupply could push prices lower in the medium
term.
Earlier this week, the EIA reported stocks at the U.S.
delivery hub of Cushing in Oklahoma rose 2.5 million barrels to
33.4 million barrels. []
This inventory overhang has depressed front month U.S. crude
prices relative to oil futures, resulting this week in the
widest WTI crude market contango since August of more than $2 a
barrel.
For graphic showing steepening of the forward curve, click:
http://graphics.thomsonreuters.com/129/CMD_NYOIL1209.gif
"There is a strong message in the oil market and that is
weakness. The contango is widening significantly and this points
to physical oversupply," said analyst David Wech at JBC Energy,
referring to both inventories on land and in floating storage.
The volume of refined oil products stored on ships floating
in the sea increased to 98 million barrels at the end of
November, the IEA said on Friday. []
Data out of the United States later is likely to provide
further direction as traders look for clues about the pace of
demand recovery in the world's largest oil consumer.
U.S. preliminary December consumer confidence figures are
due at 1455 GMT.
(Editing by James Jukwey)
