Oil prices fell for a fifth day to below $84 a barrel Tuesday as traders mulled whether a slowly improving U.S. economy justified the recent two-month, 25 percent crude rally and experts warned that high oil prices could threaten the budding economic recovery.
By early afternoon in Europe, benchmark crude for May delivery was down 76 cents to $83.58 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 58 cents to settle at $84.34 on Monday.
Crude jumped to above $87 a barrel last week from $69 in early February on investor expectations tepid U.S. crude demand will eventually catch up with a recovering economy. U.S. crude inventories have remained high, but some analysts were cheered by signs global economic growth is strengthening.
"Recent economic news has been reassuring, reinforcing the notion of a broadening recovery which we expect will continue to support energy and industrial metals prices going forward," Goldman Sachs said in a report.
Goldman said it expects crude to rise to $94.50 a barrel in three months and $99 in 12 months.
Other, however, said that higher oil prices had been driven more by external factors like the dollar and speculative investments rather than the fundamentals of supply and demand.
"In the last one and a half years a high correlation between oil prices, exchange rates and the DJIA (Dow Jones industrial average) has been regularly observed," said a report from JBC Energy in Vienna said. "However, we are now increasingly entering a period of normalization, meaning that oil market fundamentals have a chance to retake the leading role."
This change, JBC said, would likely mean that oil prices would "continue to be pressured by increasing overcapacity" this year.
"We see both refinery expansions and OPEC capacity additions outpacing the respective marginal upticks in requirements," JBC said.
That analysis was also reflected in Tuesday's monthly report on oil markets from the Paris-based International Energy Agency.
The agency said concerns remain that global oil markets are "overheated," with crude around $85 per barrel, which could jeopardize the recovery of the world's biggest economies.
"Ultimately, things might turn messy for producers if $80-100 (per barrel) is merely seen as the new $60-80 (per barrel), stunting economic recovery while prompting resurgent non-oil and non-OPEC supply investment" the IEA said.
In other Nymex trading in May contracts, heating oil fell 0.34 cents to $2.2155 a gallon, and gasoline slid 0.66 cent to $2.2892 a gallon. Natural gas dropped 2.4 cents to $3.984 per 1,000 cubic feet.
In London, Brent crude was down 24 cents at $84.53 on the ICE futures exchange.
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