Oil fell toward $81 a barrel on Tuesday from a 15-month high as forecasts for milder weather in the U.S. Northeast signaled lower demand in the world's largest heating oil market.
U.S. Northeast temperatures in the next six to 10 days will be near to above normal, said DTN Meteorlogix. The National Weather Service on Monday forecast heating oil demand would ease to normal levels this week.
U.S. crude for February delivery fell $1.18 to $81.34 a barrel at 1212 GMT (7:12 a.m. EST), after hitting $83.95 on Monday, the highest intraday level since October 2008. Brent crude lost $1.14 to $79.83.
"I think the cold weather was just a psychological argument to buy crude oil because supply is ample," said Carsten Fritsch, analyst at Commerzbank.
Following Monday's high, "it's time for the financial investors to take profits," he said. "The prospect of milder temperatures may be another argument to take profit now."
While oil inventories are brimming due to a year of falling global demand and ample supply, weekly U.S. data due on Tuesday and Wednesday is expected to show the icy weather has eroded stockpiles of distillates.
U.S. distillates inventories were forecast to have fallen 1.7 million barrels, their fifth-straight weekly drop. Crude inventories probably rose 1.0 million barrels.
Tuesday also sees the release of the U.S. government's monthly supply and demand forecast.
The report will say that U.S. and global oil demand will increase in 2010 and 2011, but not as fast as in previous years, according to Reuters' report.
US President Joe Biden and Iraqi Prime Minister Mustafa Al Qadimi signed an agreement on July 26 to formally end the USA's military presence in the country by the end of the year