The price of oil fell to around $106 a barrel Tuesday after weak U.S. home sales figures and ahead of a weekly report on America's inventories of crude that was expected to show another drop in supplies.
By early afternoon in Europe, benchmark crude for September delivery was down 96 cents at $105.98 a barrel in electronic trading on the New York Mercantile Exchange.
Oil slid $1.14 on Monday after the government said sales of previously occupied homes in the U.S. slipped 1.2 percent in June to a seasonally adjusted annual rate of 5.08 million. Any sign that the U.S. economic recovery is slowing can cause the oil price to fall.
Analysts said speculative trading was also likely behind the sudden turnaround in the oil price.
"Profit-taking by short-term-oriented financial investors is doubtless to blame for the sharp fall," said a report from Commerzbank in Frankfurt. "The fact that the WTI price twice failed to achieve the $109 per barrel mark is likely to have prompted initial investors to unwind their positions. That said, it is possible that these same investors will re-enter at lower prices."
WTI, or West Texas Intermediate, is the crude oil type behind the benchmark Nymex contract.
Investors will later be monitoring fresh information on U.S. stockpiles of crude and refined products.
Data for the week ending July 19 is expected to show a draw of 2.6 million barrels in crude oil stocks and a build of 800,000 barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department's Energy Information Administration — the market benchmark — will be out on Wednesday.
Sharp drops in U.S. crude supplies for the past three weeks have helped propel oil to its highest price in about 16 months.
Brent crude, which is traded on the ICE Futures exchange in London, was down 29 cents at $107.86 a barrel.
In other energy futures trading on the Nymex:
— Wholesale gasoline lost 1.9 cents to $2.9992 a gallon.
— Heating oil retreated 1.08 cents to $3.058 a gallon.
— Natural gas gained 0.6 cent to $3.683 per 1,000 cubic feet.