Oil slipped back to below $54 a barrel on Tuesday, chipping away at a near 10 percent rally after a rebound in equity markets and expectations of another OPEC cut helped the market to its biggest two-day gain in two months, reported Reuters.
Oil prices leapt by 9.1 percent on Monday after Washington agreed to pump $20 billion into struggling Citigroup (C.N: Quote, Profile, Research, Stock Buzz), the second-largest U.S. bank, sending the U.S. dollar to a two-week low against the euro and making oil more attractive.
U.S. light crude for January delivery fell 85 cents to $53.65 a barrel by 0410 GMT (11:10 p.m. on Monday), having rebounded from the 3- year low of $48.25 it hit on Friday. Prices have tumbled by nearly $100 from their record high in July as the global economic crisis eats into demand in consumer nations.
London Brent crude edged down $1.01 to $52.92 a barrel.
Oil traders are now looking ahead to Saturday's informal OPEC meeting in Cairo for further action from the cartel, which agreed a 1.5 million barrels per day cut in oil production from November 1, supply curbs that may not be fully felt until December or even January when oil reaches refineries worldwide.
Analysts were divided over whether further action was imminent, with 8 of 15 oil analysts polled by Reuters saying OPEC would likely wait until its policy-setting meeting in Oran on December 17 to tighten supplies further.
"The only support is coming from OPEC. And the market might have to wait for the second cut," said French bank Societe Generale in a research report.
The weakness of the oil market calls for another OPEC cut of more than 1 million barrels per day (bpd), the group's president, Chakib Khelil, said on Monday, but added the precise amount would only become clear in December.
Oil prices have not risen for more than two days in a row since mid-September, with fleeting rallies quickly sold as investors flee riskier markets or sell commodities to cover falling equity positions.
Bringing some seasonal support to the market, cold weather in the United States is expected to send demand for heating oil, concentrated in the Northeast, 10 percent above normal this week, according to the National Weather Service.
Stronger winter demand may also be reflected in U.S. oil and products data, to be released on Wednesday by the Energy Information Administration (EIA).
Stocks of distillates -- which include heating oil -- are likely to have fallen by 1 million barrels, according to a Reuters poll. Crude stocks likely rose by 400,000 barrels and gasoline stocks by 700,000 barrels in the week to November 21.
"Cold weather and OPEC are supportive. But underlying demand fundamentals are bearish," Societe Generale said.
Despite news that average U.S. gasoline pump prices had fallen below $2 for the first time since March 2005, the AAA motorist group forecast last week that Thanksgiving travel will decline this year for first time since 2002.