Oil prices went down after the report that Turkish troops that entered Iraq early Tuesday have returned to Turkey, reducing worries that the conflict would cut oil supplies from the region.
Jamal Abdullah, a spokesman for the regional Kurdistan government, told The Associated Press that the Turkish troops had withdrawn. Earlier they had gone about 1 1/2 miles (2.5 kilometers) into northern Iraq in an operation against Kurdish rebels. The Iraqi government said it was an unacceptable action that would lead to "complicated problems."
The threat of just such a Turkish incursion into Iraq was one of the many factors behind oil's rise to near $100 a barrel in November. While oil futures have since retreated from those highs on a view that global supplies of crude are growing as demand is falling, concerns about supply disruptions remain high.
A downturn in the stock market also undermined oil prices. Energy traders often view movements in equity markets as a proxy for the economy's health. Traders worry that a slower economy will reduce demand for oil and gasoline.
"Concerns about the economy are front and foremost," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
Light, sweet crude for January delivery fell $1.20 to $89.43 a barrel on the New York Mercantile Exchange. Earlier, prices rose as high as $92.88. The January contract expires after the Nymex closes Tuesday.
Oil prices have retreated in recent weeks as OPEC output has increased and as a number of forecasters, including the Energy Department, have lowered their estimates of how quickly oil demand is growing.
Domestic oil supplies have also pressured prices. On Wednesday, the Energy Department's Energy Information Administration is expected to show domestic crude inventories fell by 1.5 million barrels last week, according to the average forecast of analysts surveyed by Dow Jones Newswires.
But activity at the closely watched Nymex physical delivery terminal in Cushing, Oklahoma, may have a larger impact on prices later in the week. Falling supplies there are seen as a symptom of a tight market, and those concerns ease when Cushing inventories rise, as they have for several weeks in a row.
"We will not be surprised by a further increase in Cushing supply," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, in a research note.
Analysts also predict inventories of distillates, which include heating oil and diesel fuel, fell by 400,000 barrels last week, while gasoline supplies rose by 700,000 barrels. Refinery activity is expected to have grown by 0.3 percentage point to 89.1 percent of capacity.
Other energy futures were mixed Tuesday. January heating oil futures fell 4.92 cents to $2.5487 a gallon on the Nymex, while January gasoline futures fell 3.29 cents to $2.3025 a gallon. January natural gas futures rose 6 cents to $7.095 per 1,000 cubic feet.
In London, Brent crude futures fell $1.31 to $89.98 a barrel on the ICE Futures exchange.