Oil falls below $80 on firmer dollar, weak equities

By Emma Farge

LONDON (Reuters) - Oil fell to around $80 a barrel after a steep decline in U.S. crude inventories sent prices up 1 percent the previous day, as traders aimed to lock in profits amid weaker equity markets and a firming dollar.

U.S. crude for December fell 45 cents to $79.95 by 1151 GMT, after hitting $81 a barrel the previous day.

London Brent crude fell 51 cents to $78.38 a barrel, after settling up 80 cents on Wednesday.

"The dollar is up and equities are down -- there you go. The correlation seems to be holding," said Global Insight analyst Simon Wardell.

He added that prices seemed overbought at current levels. "Prices probably overcorrected at the end of last year but there's quite a bit of froth now."

News of a surprise 4 million barrel drop in U.S. crude stocks last week sparked a rally on Wednesday which saw prices jump to within a dollar of the October 12-month high of $82 a barrel.

The U.S. Federal Reserve's decision to keep borrowing costs near zero for an "extended period" on Wednesday also weighed on the dollar and raised expectations that demand in the main fuel consumer would improve, spurring oil prices higher.

But the rally lost momentum on Thursday and prices turned negative as the dollar moved higher and European equities fell.