Oil futures fell sharply, dropping to near $100 on the possibility that OPEC will boost production and on expectations that crude inventories are continuing to rise.
U.S. light, sweet crudeoil for April delivery fell on the New York Mercantile Exchange.
London Brent crude followed the move.
Chakib Khelil, president of the Organization of Petroleum Exporting Countries, said the cartel is shying away from boosting production due to expectations that global demand for crude will fall during the second quarter. But some investors are betting the cartel will boost production to bring prices down.
OPEC ministers are worried that soaring oil prices will help push the U.S. into a recession, which would further cut demand for crude.
"Whether enshrined in a formal quota hike or more surreptitious, an OPEC output hike seems a distinctly stronger possibility that the market has apparently priced in," said Antoine Halff, an analyst at Newedge USA LLC in a research note.
Prices were also pressured by expectations that domestic crude inventories rose by 2.3 million barrels last week, according to analysts surveyed by Dow Jones Newswires. The Energy Department's Energy Information Administration will issue its weekly inventory report on Wednesday.
Prices rose as high as $103.95 a barrel Monday, climbing past the $103.76 price many analysts consider to be the true record high for oil after the $38 per barrel price from 1980 is adjusted for inflation.
Analysts attribute much of the recent runup in oil prices to speculative investors driven to the market by the falling dollar. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling. This view of oil futures as a safe haven for money during turbulent times has in many cases rendered reports on inventories and demand moot.
"With the emphasis on the financial aspects, inventories are just below the radar," said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Amherst, Mass.
But that can only last so long, many analysts say. At some point, fundamentals will reassert themselves on the market. While oil supplies are rising, several forecasters have recently cut back demand growth predictions for this year.
Still, Tuesday's downturn may not be the beginning of an end to oil's bull run, said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J. Indeed, futures should be expected to stall from time to time during rallies as investors sell to lock in profits, he said.
Oil's recent rise has boosted gas prices, which rose 0.3 cent overnight to a national average of $3.168 a gallon, according to AAA and the Oil Price Information Service. Diesel prices also rose overnight to a new record of $3.681 a gallon. Many analysts expect gas prices to rise to near $4 this spring, well above last May's record of $3.227 a gallon.
Other energy futures fell Tuesday. In Nymex trading, April heating oil futures fell 6.11 cents to $2.7797 a gallon while April gasoline futures dropped 10.75 cents to $2.5645 a gallon. Natural gas futures rose 0.9 cent to $9.355 per 1,000 cubic feet.
In London, Brent crude futures fell $2.64 to $97.84 a barrel on the ICE Futures exchange.