Warm US weather cools crude below $80

London: US crude futures drifted lower to hover beneath the key $80 a barrel mark Thursday as gains in the dollar weighed on prices and doubts about the pace of demand recovery in the United States dampened sentiment.

The dollar inched higher against the euro to move up from 15-month lows earlier in the week while sluggish demand for distillates due to mild weather in the US capped price gains.

US crude for December delivery fell 46 cents to $79.12 a barrel by 1010 GMT, after settling up 44 cents on Wednesday.

Brent crude for January delivery fell 42 cents to $79.05 a barrel after trading within cents of the year high of $80.26 on Wednesday.

"We have seen some good gains in the last few days and we are very close to important psychological levels so it's a slight retracement," said oil futures broker Tony Machacek at Bache Financial.

US oil prices rose above the key $80 a barrel level in the previous session after government data showed a drop in crude and product inventories in the world's largest oil consumer.

Crude stocks fell a more-than-expected 900,000 barrels and while distillate stocks including diesel and heating oil fell 300,000 barrels this was less than analyst projections.

But analysts said mild weather in the US and high global oil products stocks held in storage on land and on floating vessels was set to limit potential upside on oil.

"Temperatures are unseasonably mild in the United States and crude is holding the range between the high $70s and low $80s," said Peter McGuire, managing director of CWA Global Markets.