Oil eased below $81 a barrel on Monday, extending the previous session's losses, as data showing a drop in US consumer confidence fanned worries about flagging demand in the world's top energy user.

The market will scour US February industrial output data, due later, for further clues to the health of the world's largest economy, and a statement from the Federal Reserve at the end of its two-day interest rate-setting meeting on Wednesday, for evidence the recovery is still on track.

"Sentiment is a bit mixed today, with prices driven lower by profit-taking, as stronger-than-expected US February retail sales were offset by a decline in March consumer confidence," said Ben Westmore, commodities analyst at the National Australia Bank in Melbourne.

"The market will await further clues on demand outlook from the Fed's rate decision on Wednesday."

By 0243 GMT, US crude for April delivery had fallen 47 cents to $80.77 per barrel, after settling at $81.24 on Friday. London Brent crude was down 39 cents at $79.00.

US consumer sentiment declined slightly in early March, with Americans less positive about the job outlook, a survey released on Friday showed.

But February retail sales rose unexpectedly, despite heavy snow storms that were thought to have kept shoppers at home and bolstered hopes of a sustainable economic recovery.

At 1315 GMT, the Federal Reserve will unveil industrial output and capacity utilisation data for February.

Economists expect a 0.1 per cent fall in production and capacity usage of 72.6 per cent, compared with January's rise of 0.9 per cent in production and a capacity usage of 72.6 per cent.

The Fed is expected to hold benchmark rates near zero and reiterate its pledge to keep them low for an "extended period", due to lingering weakness in the US jobs market and nagging doubts over the solidity of the economic rebound.

But since US consumers are buying more and companies appear to be on the verge of hiring again, policymakers in the Fed may ponder on how long to keep its ultra-low rate pledge.

Investors will try to tack another leg on to the year-long US stock rally, looking to this week's economic data and statement from the central bank for cues.

After tumbling during the fourth-quarter earnings season, the S&P 500 has climbed back to its mid-January levels, racking up a 17-month closing high last week. But the index's hold on the key 1,150 level is tentative and closed just below it on Friday.

Friday's solid US retail sales data buoyed the greenback against the yen on Monday, but the Japanese currency hovered within striking distance of three-week lows on growing expectations the Bank of Japan could mull loosening monetary policy further this week.

Sources have told Reuters Japan's central bank is leaning towards easing monetary policy again at its two-day policy review that ends on Wednesday.

On the supply front, the market will also eye the outcome of Opec's meeting later this week.

Opec, which pumps at least one in every three barrels of oil, meets in Vienna on Wednesday to discuss production policy.

Officials have said they do not expect a change in targets while prices are within their desired range.

Opec has restricted output since the onset of the financial crisis in a bid to support prices. But the group's compliance with its officially targeted cut of 4.2 million barrels per day (bpd) has slipped to just 53 per cent as prices have risen. – Reuters