NEW YORK (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, or 0.2%, to $79.43 a barrel on the New York Mercantile Exchange, after rising to an intraday high of $80.05 a barrel. The contract will expire at the end of trading on Tuesday.
The December contract slid 14 cents, or 0.2%, to $79.82 a barrel.
"Areas of weakness remain, but most of the groundwork for a sustainable move up has been laid," said Amrita Sen, an analyst at Barclays Capital. "We continue[d] to reiterate our view of $76 a barrel average for the fourth quarter."
Oil has risen in the past eight sessions in a row, gaining 14%. It rallied 9.4% last week, the biggest weekly gain in two months.
"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."
Petroleum data ahead
The American Petroleum Institute is scheduled to release its petroleum inventory data at 4:30 p.m. Eastern time 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 a 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 in energy trading, November gasoline futures slid 0.4% to $1.9781 a gallon, and November heating oil fell 0.4% to $2.0445 a gallon.
The United States Oil Fund (USO 40.39, -0.37, -0.91%) lost 0.3%, and the Untied States Natural Gas Fund (UNG 11.89, +0.26, +2.24%) gained 2.5%.
