Oil fell more than $1 on Tuesday after the International Energy Agency (IEA) cut its forecast for world oil demand growth, saying that the recent surge in oil prices had already hurt consumption.
U.S. light crude for December delivery shed 83 cents to $93.79 a barrel by 6:40 a.m. EST, while London Brent crude fell 81 cents to $91.17.
The IEA sharply reduced its forecast for oil demand growth through the rest of 2007 and into 2008, saying oil's march towards $100 was already slowing consumption.
It's not surprising that oil prices are retreating. There's a bit of worry about demand in the U.S., which has suffered from the subprime crisis, said Lawrence Poole, an energy analyst at Global Insight, a consultancy in London.
The IEA, the adviser 26 industrialized consumer nations which already revised downward its forecasts in October, cut its prediction for fourth quarter demand growth by 570,000 barrels per day (bpd) and by 180,000 bpd in the first quarter of 2008.
Saudi Oil Minister Ali al-Naimi said there would be no OPEC output policy decision at the group's Riyadh summit. This is not the place to focus on price, incremental production or a decrease, Naimi told a news conference.
OPEC's next policy meeting is on December 5 in Abu Dhabi.
The OPEC summit in Riyadh brings together heads of state for the first time since 2000, when oil was at $30 a barrel.
Algerian Energy and Mines Minister Chakib Khelil said on Monday the event will call on consuming nations to play their part in bringing down record oil prices that are increasingly influenced by financial markets.
Analysts said the expiry of options on the December contracts on Tuesday could offer some support for oil prices, but the market could tumble soon after as speculators scramble to exit the main December contract ahead of its Friday expiry.
There's been a lot of volatility, said Poole. The major financial institutions are engaging in speculative trades in oil, building positions. They were responsible for pushing the prices up to a level which is not supported by supply and demand fundamentals.
U.S. oil has fallen about $4 from its record of $98.62 a barrel last Wednesday, weighed down by profit-taking on concerns of a slowing U.S. economy and signs that OPEC may finally take action to stem a more than one-third rise since mid-August.
A rebound in the U.S. dollar, which on Monday posted its biggest one-day gain versus the euro in over a year, helped pull down crude oil futures, although it lost some of that ground against a basket of currencies in Tuesday trade.
Traders will also be focusing on the weekly U.S. crude inventory data, which will be released a day later than normal on Thursday because of the Veterans Day holiday on Monday.
A preliminary Reuters poll shows analysts expect a 1.0 million-barrel drawdown on crude stocks, a 700,000-barrel decline in distillate inventories and a 400,000-barrel drop in gasoline supplies.
(Additional reporting by Annika Breidthardt in Singapore and Fayen Wong in Sydney; Editing by James Jukwey)