Oil fell more than $2 a barrel on Tuesday, after a record one-day rise in the previous session, depressed by doubts over a U.S. plan to rescue the financial sector. U.S. crude for November was $2.17 down at $107.20 a barrel by 1241 GMT, after rising nearly $7 on Monday. November Brent crude traded down $2.63 to $103.41.
The October U.S. crude contract on Monday settled 15.7 percent higher at $120.92 before its expiry — the biggest one-day gain on record.
The U.S. regulator of futures markets, the Commodity Futures Trading Commission, said on Monday it was reviewing the price jump to ensure that the trading was valid.
Monday's price surge was supported by a weak U.S. dollar plus hopes the $700 billion U.S. bailout plan would ease the U.S. financial crisis and support demand in the world's top energy consumer.
But concerns that political resistance to the rescue package could delay its implementation weighed on global markets.
"It started off with a wave of optimism and now perhaps a bit of realism has kicked in," said Christopher Bellew, a broker at Bache Commodities.
"The dollar's weak, but the stock market is weak as well. The implications of that for demand are probably why we're coming back down again."
The weak dollar can boost the appeal of commodities to investors seeking to hedge against inflation. The dollar steadied on Tuesday against a basket of other major currencies.
U.S. Treasury Secretary Henry Paulson urged Congress not to weigh down the proposed financial system bailout with unrelated provisions that would delay its implementation.
WEAK DEMAND
After hitting a record high of $147.27 a barrel in July, oil dropped to around $91 a barrel last week on mounting evidence that high energy costs and slowing economic growth were having an impact on fuel demand in large consuming nations.
U.S. oil consumption is running about 4 percent below last year, according to the latest government data.
But prices rebounded after Hurricane Ike battered U.S. oil infrastructure earlier this month, which means that more than 75 percent of production in the Gulf of Mexico — home to a quarter of U.S. output — remains closed.
A Reuters poll of analysts ahead of weekly U.S. government inventory data due on Wednesday forecast that crude stocks fell by 1.3 million barrels last week due to disruptions caused by Ike.
Distillate stocks were forecast to have fallen by 1.4 million barrels, with gasoline stocks expected to have dropped by 4 million barrels after Ike shut Gulf Coast refineries.
News that Saudi Arabia had cut supplies to oil companies, reported by Reuters on Monday, as well as unrest in Nigeria and higher-than-expected Chinese imports have also supported prices.
The BP Plc-led Baku-Tbilisi-Ceyhan (BTC) oil pipeline has shut down for a short period of planned maintenance, BP said, but exports will not be affected.
