By Polya Lesova & Myra P. Saefong, MarketWatch
FRANKFURT (MarketWatch) -- Oil prices edged lower Tuesday after hitting a fresh one-year high above $80 a barrel, as sentiment was dominated by worries over whether crude's recent surge is justified given the ongoing weakness in demand.
Crude oil for November delivery fell 18 cents to $79.43 a barrel in electronic trading on Globex. The contract will expire at the end of trading on Tuesday.
Earlier in the session, November crude soared to an intraday high of $80.05 a barrel.
"Oil prices temporarily rose above $80 per barrel on recovery hopes, but traders warn that fundamentally the market remains well-supplied with oil, so that gains should be limited," said analysts at Action Economics.
Oil prices rose 1.4% to end at $79.61 a barrel Monday, marking the highest settlement for a front-month contract since last October.
Prices have been climbing every trading day since the November contract closed at $69.57 on Oct. 7.
"We would attribute most of this rally to this inflow of liquidity into the market," Stefan Graber, an analyst at Credit Suisse said in a research note on Tuesday. And "given the latest round of positive economic data, investors are turning increasingly optimistic towards oil."
But Graber said he's "unsure whether this is already a sustainable break higher, given the fact that demand has not improved substantially over the last few weeks."
Crude for December delivery, which will become the new front-month contract, dropped 16 cents to $79.80 a barrel in recent trading on Globex. It earlier soared to an intraday high of $80.40.
Supply data ahead
The American Petroleum Institute is scheduled to release its petroleum inventory data at 4:30 p.m. Eastern on Tuesday. The Energy Information Administration will report its more closely watched data on Wednesday morning.
Analysts polled by Platts expect a build in commercial crude stocks of 2.2 million barrels for the week ended Oct. 16. They also project a decline of 2.3 million barrels in gasoline stocks and a drop of 1.5 million barrels in distillate inventories.
"Fundamentals remain poor amid glut of product stocks and low refining margins which could see refiners reduce utilization further, hence reducing demand for crude," said Nimit Khamar, analyst at Sucden Financial Research, in a note to clients.
Demand recovery is far from convincing, while spare capacity has increased significantly, he said.
"So, once fundamentals come into the limelight crude prices could be susceptible to a sharp correction as a rally not supported by fundamentals cannot be sustained indefinitely," Khamar said.
Also on Globex, December gold was up $8.80 at $1,066.90 an ounce. See Monday's metals story.
It "could be a big week in commodities," said Darin Newsom, a senior analyst at commodities-information provider DTN.
"The U.S. dollar remains under pressure. Crude oil is rallying toward $90, and gold continues to find support," Newsom said.
