NEW YORK - Oil prices that last week seemed on an inexorable path toward $100 a barrel slid more than $3 to the $91 level Tuesday after the International Energy Agency cut its demand forecasts and said crude supplies are rising.
Prices also fell after diplomats said Iran has handed over blueprints key to its nuclear program, meeting a central United Nations demand and potentially defusing the country's standoff with the West.
"One of the reasons that we've been strong on oil all year is concerns about Iran's nuclear program," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
Light, sweet crude for December delivery fell $3.45 to settle at $91.17 a barrel on the New York Mercantile Exchange. Only last Thursday, crude prices traded as high as $98.62, a record, and appeared headed for $100.
The IEA, an energy policy adviser to 26 predominantly Western industrialized nations, lowered its fourth-quarter oil demand forecasts by 500,000 barrels a day, and cut its demand forecasts for 2008 by 300,000 barrels a day. Year-over-year demand growth will now average 1.2 percent in 2007 and 2.3 percent in 2008, the IEA said.
At the same time, global oil supplies grew by 1.4 million barrels a day in October due to increases in OPEC supplies and production in China, Azerbaijan and Russia, the IEA said. The Organization of Petroleum Exporting Countries boosted output by 410,000 barrels a day in October, the IEA said.
"There are ... strong indications that high prices are depressing demand," the IEA said in its monthly Oil Market Report.
Oil's recent surge crude prices have jumped 42 percent since late August was fed by a mixture of concerns about falling domestic supplies and rising demand, the threat of disruptions to the oil flow from the Middle East and actual breaks in production from Nigeria.
But analysts have long theorized that oil was also lifted by speculative buying incited by the dollar's long decline. And while some of the market's fundamental concerns seemed to be ebbing Tuesday, some of the selling was likely due in part to a reversal of those speculative bets.
Still, whether Tuesday's sharp decline marks the beginning of the end of an oil bubble remains to be seen. Prices did rebound late in the session from lows near $90. Analysts say investors who still believe oil will rise above $100 will swoop in to "buy the dips" whenever oil prices fall.
Investors will be further tested on Thursday when the Energy Department issues its weekly inventory report. A larger than expected decline in crude supplies could reverse the recent bearish sentiment and send prices back towards $100, analysts say.
Reports from the IEA are closely watched by energy traders and investors. Previous IEA predictions of strong fourth quarter demand and falling supplies have helped fuel crude prices.
"As demand deteriorates, even slightly, that really takes the bullish (sentiment) out of the market," said James Cordier, president of Liberty Trading Group in Tampa, Florida.
Other Nymex petroleum futures also fell Tuesday. December gasoline futures dropped 9.98 cents to settle at $2.3167 a gallon, while December heating oil futures fell 8 cents to settle at $2.5021 a gallon.
December natural gas futures fell 1.2 cents to settle at $7.949 per 1,000 cubic feet.
In London, December Brent crude fell $3.15 to settle at $88.83 a barrel on the ICE Futures exchange.
Oil prices were also pressured Tuesday by indications OPEC may agree at a meeting next month to further boost output, and by Tuesday's expiration of December crude call options.
On Tuesday, Saudi Arabia's Oil Minister, Ali Naimi, reiterated that OPEC may discuss increasing output at a meeting next month in Abu Dhabi, United Arab Emirates, according to Dow Jones Newswires. Energy Secretary Samuel Bodman, speaking at the World Energy Congress in Rome, said he has asked OPEC to increase production.
Traders were awaiting the Energy Information Administration's weekly inventory report, delayed until Thursday this week due to Monday's Veteran's Day holiday.
The report is expected to show that U.S. crude oil inventories fell by 300,000 barrels last week, according to the average estimate of analysts polled by Dow Jones. Gasoline inventories, on average, likely fell 100,000 barrels, while distillate stocks were expected to fall 300,000 barrels. Refinery use likely rose 0.7 percentage point to 86.9 percent of capacity.
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