* Oil falls for second day after breaking 8-day rally
* API says crude stocks rise more than forecast; EIA eyed
* U.S. dollar weakens against basket of currencies
(Previous SINGAPORE, updates prices)
LONDON, Oct 21 (Reuters) - Oil fell below $79 a barrel on
Wednesday, extending the previous session's decline from a
one-year peak after a bigger-than-expected rise in U.S. crude
oil inventories.
The American Petroleum Institute said crude stocks rose 3.8
million barrels, more than double the forecast. [] Traders
will be looking to Energy Information Administration figures at
1430 GMT for confirmation of the API report. []
"The market has eased because of the stockbuild last night
in the API stats," said Christopher Bellew, a broker at Bache
Commodities.
"Even the technical analysts, who are quite bullish about
the market, are cautioning there is room for a correction in the
short term."
U.S. crude for December <CLc1> fell 57 cents to $78.55 a
barrel by 0815 GMT. Brent crude <LCOc1> lost 44 cents to $76.80.
On Tuesday, the November U.S. crude contract hit $80.05, a
12-month high for a nearby contract.
Oil gained some support as the dollar weakened against a
basket of currencies. A falling dollar makes oil relatively
cheap to holders of other currencies.
Technical analysts, who use past price moves to predict
future direction, noted that oil's rally has left it looking
overbought and, depending on the dollar, the market could fall
quite sharply.
"We think the selling may have more room to go, particularly
if the dollar strengthens slightly from here", said Edward Meir,
analyst at MF Global.
"In fact, we could perhaps sell off to the $75 level, which
was trading range resistance that gave way last week."
The weak dollar and anticipation of future economic recovery
have been among the drivers of the oil price rally this year,
rather than market fundamentals of supply, demand and
inventories.
The International Energy Agency, which represents 28
industrialised countries, has warned that the fast rise in
prices could pose a risk to global economic recovery.
But Nigeria's oil minister, Rilwanu Lukman, said on
Wednesday that $80 was a fair price for oil and one that should
encourage investment in new supplies.
(Reporting by Nick Trevethan and Alex Lawler; Editing by
Anthony Barker)
