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 On Tuesday, crude prices declined sharply after the International Energy Agency cut its demand forecasts and said that crude supplies are rising.
"Essentially, what the IEA indicated was that high crude prices were weighing down on oil demand," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The news is seen as bearish for the market."
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.
Oil prices also continued to be affected by indications OPEC may agree at a meeting next month to further boost output. 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.
Only last Thursday, crude prices rose to an intraday record of $98.62 a barrel and appeared headed for $100, driven by a mixture of concerns about falling domestic supplies and rising demand.
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.
Whether Tuesday's sharp decline marks the beginning of the end of an oil bubble remains to be seen. Analysts say investors who still believe oil will rise above $100 will swoop in to "buy the dips" whenever oil prices fall.
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 "Because the factors that drove pricing to record highs have not changed, it is therefore likely that the crude market will make another run toward $100," Shum said.
Others, however, said that the downward trend could continue, with the maneuvering of speculative positions continuing to affect the market.
"With WTI (light crude oil) stalling in the last three days of last week and correcting the first two day of this week, the technical momentum is starting to shift to the downside," said Olivier Jakob of Petromatrix.
"De-hedging, profit taking on exercised options and reshuffling of positions should remain a market factor into the expiry of the December futures on Friday," Jakob said in a market note. "This could make for some further volatility purely based on position management."
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.
Nymex heating oil futures gained 2.99 cents to $2.5320 a gallon (3.8 liters) while gasoline prices rose 3.27 cents to $2.3494 a gallon. Natural gas futures fell 1 cent to $7.939 per 1,000 cubic feet.
[Associated Press; By PABLO GORONDI]
Associated Press writer Gillian Wong in Singapore contributed to this report.
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