Oil prices fell 2.5 percent Tuesday as speculators took profits from Monday's dramatic rally.
US light crude futures fell 88 cents to settle at $34.10 a barrel, while London Brent fell were down 51 cents a barrel to $34.47, while London Brent lost 73 cents to settle at $29.50.
Monday's rally of nearly $2 was fuelled by gasoline prices, which shot higher after two refinery fires in the US Midwest stirred worries over regional fuel stocks.
Crude's long winter rally, which had added more than $7 a barrel to US futures since late September, has seen speculators amassing huge net long positions that analysts say they may soon unwind as warmer weather appears on the horizon.
"The impact of the hedge funds on market volatility has been profound," said William Buchanan of Standard Bank in London.
"In past times, market participants could weigh up the fundamental and technical considerations and form a reasonable view as to where prices were heading. Today the fund managers make a similar analysis but it is the sheer volume in trades and size of positions that can sometimes overwhelm the oil market," he added.
The bull market may be ending, several analysts said on Tuesday.
"In a technical sense, Monday's move up might have been the last gasp of the bull market. It's too early to say, but the early signs are there," said Ed Silliere of Energy-Merchant in New York.
In a fundamental supply-and-demand sense, the market will also get another look at supply conditions in the United States when the government releases its latest weekly inventory data Wednesday at 1030 EST (1530 GMT).
A survey of analysts by Reuters showed that expectations are for a drawdown in heating oil and gasoline stocks but for a slight build in crude oil stocks.
Ahead of next week's Opec meeting in Algiers, Venezuelan Oil Minister Rafael Ramirez said Monday the cartel could cut or leave output quotas unchanged.
"A cut is possible or we could leave it as it is," Ramirez told reporters at a gas conference in Trinidad, but ruled out any increase in production.
Several oil ministers from the Organisation of Petroleum Exporting Countries member nations have said recently oil prices were running too high for the cartel to reduce production.
Ministers have said they are fear a price slide in the second quarter as demand ebbs following the Northern Hemisphere winter and rival production comes onstream from non-Opec Russia.
Russian oil major LUKOIL on Tuesday raised its 2004 oil output growth forecast to 6-7 percent from 4.3 percent previously. Russia's energy ministry said last week it expected production to rise six to eight percent in 2004 after a record 11 percent boost last year.