NEW YORK – Crude oil futures (search) tumbled more than $2 on Tuesday after a bout of fund-led profit-taking after the market's climb to record highs above $60.
Despite the heavy losses, traders said the market appeared to be just taking a breather from a prolonged rally, with its direction still up. Position-squaring ahead of Wednesday's release of government inventory data also pulled prices down, they added.
Crude for August delivery last traded down $2.29 or 3.8 percent at $58.29 on the New York Mercantile Exchange (search). It bottomed at $57.90 which marked its lowest in five sessions after breaching support at $59.75. Resistance lurks at $62 after crude posted a record $60.95 on Monday.
In London, Brent crude last traded down $2.02 or 3.4 percent at $57.28 a barrel after falling as low as $56.85 on the International Petroleum Exchange (search).
"The quarter is about to end, so you get a lot of funds taking profits," said Ed Silliere, a trader at Energy Merchant Intermarket Futures.
Buying led by speculative funds and locals had pushed up prices almost by a third since late May amid worries of a global strain on production and refining capacity, especially in the fourth quarter when demand for heating oil peaks, according to analysts.
Record high oil prices are hurting the U.S. economy, but not enough to halt or reverse its recovery, Treasury Secretary John Snow (search) said Tuesday. "Energy prices are way too high," Snow said on CNBC television. "Clearly, it's hurting."
When asked if these prices portend a recession, Snow replied: "No. I don't see it derailing the strong recovery we're in. But it does take a few tenths of a (percentage) point off GDP growth, that's for sure."
Technical analysts earlier said NYMEX crude futures were poised to stage a correction on Tuesday, but the bull trend remained well supported for further gains.
"Although volume and open interest continue to be stagnant, the longs are sticking it out, encouraged by the fact that there really is nothing bearish out there to puncture this 'break-out' rally," said Edward Meir of Man Financial.
But "there is an undertone of nervousness in this market. Technically, this market needs a litle break although the charts still look supportive. Picking a bottom, or a top, is not an easy task," said Jay Levine, analyst at Advest Inc.
OPEC is already pumping crude near the highest level in 25 years and could decide this week to raise output limits by half a million barrels per day.
But the cartel has repeatedly said more crude may not help cool prices, which it says are being driven by possible shortages of refined products. U.S. crude stocks are near six-year highs.
Analysts in an expanded Reuters survey of 15 analysts predicted on average that U.S. crude inventories fell by 1.4 million barrels last week. Distillates were forecast up 1.5 million barrels, with gasoline stocks unchanged. Refinery runs were projected up 0.5 percentage point.
The Energy Information Administration (search) will release its inventory report for the week to June 24 on Wednesday at 10:30 a.m.
NYMEX July gasoline last traded down 4.75 cents or 2.8 percent at $1.6275 a gallon, moving from $1.619 to $1.668. Support was charted at $1.60 with resistance at $1.70.
NYMEX July heating oil ended down 5.41 cents or 3.2 percent at $1.622 a gallon, after moving between $1.61 and $1.676. Support was breached at $1.65. Resistance looms at $1.70.