Oil fell to under $68 a barrel on Tuesday in a choppy session, as easing concerns of a supply disruption in Saudi Arabia and U.S. dollar strength countered the prospects for tighter supply due to OPEC+ output curbs.
Crude hit its highest since the start of the pandemic on Monday after Yemen's Houthi forces fired drones and missiles at Saudi oil sites on Sunday. Saudi Arabia said it thwarted the strike, however, and prices slipped as supply fears eased.
Brent crude declined 72 cents, or 1.06%, to $67.52 per barrel, pulling back after trading as high as $69.33. It reached $71.38 on Monday, the highest since Jan. 8, 2020.
U.S. West Texas Intermediate (WTI) settled $1.04, or 1.6%, lower at $64.01 per barrel, after hitting its highest since October 2018 on Monday.
"There's an expectation that we're going to see another increase in U.S. crude supplies because refineries remain shut down," said Phil Flynn, senior analyst at Price Futures group.
Last week's record decline in U.S. inventories came after the shutdown of Gulf Coast refineries due to a winter storm in Texas two weeks ago.
"The market seems to be softening on those concerns. It's had an incredible run, and it's due for a correction."
The latest round of U.S. inventory reports are expected to show crude stockpiles dropped. The first, from the American Petroleum Institute, is due out at 4:30 p.m. ET (2130 GMT).
The Organization of the Petroleum Exporting Countries (OPEC) plus Russia and allies, a group known as OPEC+, decided on Thursday to broadly stick to output cuts, fuelling a rally.
"Caution is advised as prices are, of course, not going to rise forever," said Bjornar Tonhaugen of Rystad Energy. "A more definite price direction is expected soon, when the U.S. weekly oil inventory reports" are released.
"Dips have been lately viewed as buying opportunities," said Tamas Varga of broker PVM. "Last week's OPEC+ meeting will ensure that the global oil balance will get tighter in the foreseeable future."
A stronger U.S. dollar, which tends to crimp investor demand for commodities, also weighed on oil, analysts said. The dollar eased back from a 3-1/2-month high reached earlier.
Prices gained support from expectations of economic recovery after the U.S. Senate approved a $1.9 trillion stimulus package. The U.S. House of Representatives must approve it before it goes to President Joe Biden for his signature.