Crude oil prices settled lower Tuesday, guided by continued doubts on the pace of global economic growth.
European data set a downward trend that prices couldn't shake, despite attempts to do so after some surprisingly strong U.S. industrial production figures.
Oil prices, which tracked moves in U.S. equities and the dollar to post gains a day earlier, followed both masters into negative territory.
"We're taking more direction from the financial markets than from the fundamentals" of oil supply and demand, said Gene McGillian, a broker and analyst at Tradition Energy. Oil prices could decouple from those leaders if upcoming U.S. weekly oil inventory data hold surprises, traders said.
Meanwhile, crude has shaken the volatility that sent intraday prices to a 10-month low near $75 a barrel a week ago and consolidated in an $85-$88 a barrel range.
Light, sweet crude oil for September delivery on the New York Mercantile Exchange settled 1.4%, or $1.23, lower at $86.65 a barrel.
ICE Brent crude for September delivery expired down 44 cents at $109.47 a barrel. The October contract, the incoming front month, settled at $109.13, down 71 cents.
Germany, Europe's largest economy, posted slower-than-expected growth of just 0.1% in the second quarter, compared with an expected rise in gross domestic product of 0.4%. For the 17 nations in the euro zone, second-quarter GDP growth slowed to 0.2%, the smallest gain in two years, raising concerns about the ability to resolve lingering issues over sovereign debt.
Traders were watching talks in Paris between German Chancellor Angela Merkel and French President Nicolas Sarkozy, but the talks ended without solid moves some traders were hoping for, including a plan to issue bonds backed jointly by all the countries in the currency union or an increase in its sovereign bailout fund.
U.S. data released Tuesday continued to show a mixed picture. New home construction in July dropped by 1.5%, after gains in the previous two months. The drop, though, was smaller than expected. The price of imported goods rose 0.3% in July, while forecasters called for no change in the figure.
Industrial output was stronger than expected in July, rising 0.9% versus expectations of a 0.6% gain, data from the Federal Reserve showed. Traders said the rise would lift demand for distillate fuel, the umbrella grouping for diesel and heating oil. But prices failed to rally on the news.
"Some of the fear that was driving the market last week has evaporated. whether it will return remains the question," said McGillian.
Latest figures from MasterCard's SpendingPulse report show U.S. gasoline demand continued to be stuck in reverse in what should be the peak driving season. With retail prices holding at nearly one-third higher than a year ago, gasoline demand plunged 4.6%, or nearly 450,000 barrels a day, from a year ago in the week ended Aug. 12. That's the biggest year-on-year drop in two years.
The market is now focused on U.S. inventory data, which is expected to show a 600,000-barrel decline in crude oil stocks, even as refiners trim operations by 0.2 percentage point from 90% a week earlier. The data, for the week ended Aug. 12, is also expected to show gasoline stocks fell 1.2 million barrels, while distillates [diesel/heating oil] rose by 500,000 barrels, according to analysts surveyed by Dow Jones Newswires.
The American Petroleum Institute, an industry trade association, releases its figures for the same period at 4:30 p.m. EDT on Tuesday, while the federal Energy Information Administration, the statistical and analytical wing of the Energy Department, is scheduled for release at 10:30 a.m. EDT on Wednesday.
September-delivery reformulated gasoline settled 2.07 cents lower at $2.8538 a gallon. Heating oil settled 1.15 cents lower at $2.9326 a gallon.