Oil prices fell Monday, retreating from a record surge late last week, and traders said the market would remain choppy amid jitters about supplies, growing global demand and a weak U.S. dollar.
The average price for a gallon of gasoline in the United States hit $4 for the first time ever Sunday, according to AAA and the Oil Price Information Service. Record prices threaten to shake consumers who are spending and increasingly large share of paychecks on transportation.
By the afternoon in Europe, light, sweet crude for July delivery was down $1.99 to $135.55 a barrel. The contract was volatile, trading between $135.27 and $138.25 so far in the session.
Crude futures made their biggest single-day jump ever Friday, soaring nearly $11 for the day to $138.54 a barrel, a rise of more than 8 percent that battered stocks on Wall Street. That came after an increase Thursday of almost $5.50, taking oil futures more than 13 percent higher in just two days, easily a record on the New York Mercantile Exchange.
In London, July Brent crude was down $1.60 to $136.09 a barrel on the ICE Futures exchange.
'We're likely to see some pullback ... and a choppy period of ups and downs,' said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
'We're not going to see a substantial reduction in demand,' he said. 'Supply side concerns will continue to support pricing.'
Friday's jump came after Morgan Stanley analyst Ole Slorer predicted that strong demand in Asia and tight supplies in the Western Hemisphere could drive prices to a once-unthinkable $150 a barrel by early July.
In after-hours trading Friday, oil prices briefly touched $139.12, an all-time high.
After reaching $4.005 per gallon Sunday, gas prices hit $4.023 per gallon Monday, according to AAA and the Oil Price Information Service.
An upward swing in crude began Thursday, after European Central Bank President Jean-Claude Trichet suggested the bank could increase interest rates in July to counter rising inflation.
'Trichet has managed what no war, no hurricanes, no OPEC has ever managed to do,' analyst Olivier Jakob from Petromatrix in Switzerland said in a market report.
Jakob said Trichet's statements 'shocked the financial system,' after which oil prices, which had fallen to around $122 a barrel early last week, 'reversed course violently.'
So far, there has been little sign of weakening global demand for crude oil, despite the economic slowdown in the U.S. and recent moves by India, Malaysia and other Asian countries to raise gasoline prices after they cut subsidies.
It will take some months to see if there a decline in demand, Shum said. 'As we go deeper into U.S. summer driving season, we may see demand drop, and that could help pull back pricing.'
But he pointed out that in China, a huge oil consumer, authorities have refrained from raising state-set retail prices in recent months, suggesting that demand there may not be affected.
Traders also were unnerved by remarks Friday from an Israeli Cabinet minister who was quoted as saying his country would attack Iran if it doesn't abandon its nuclear program. Transportation Minister Shaul Mofaz said Iranian President Mahmoud Ahmadinejad 'will disappear before Israel does,' the Yediot Ahronot daily reported.
Iran is the second-biggest oil producer in the Organization of Petroleum Exporting Countries, and traders worry that any conflict with Israel could disrupt global supplies.
A weakening of the dollar also helped send oil prices higher last week by enticing overseas buyers armed with stronger currencies and others looking for a hedge against the greenback.
On Monday, however, the U.S. currency strengthened against the Japanese yen, to 105.90 yen from 104.90 yen late Friday in New York. The euro was also weaker against the dollar, down to $1.5758 from $1.5777 Friday.
Last week's surge 'was really driven by investors' capital coming into oil the last two days,' said Shum. 'It was a wild rally on Friday. I've never seen that before.'
The influx of so much fresh money into the energy markets has caught the attention of federal watchdogs. The U.S. Commodity Futures Trading Commission recently said it was six months into a probe of U.S. oil markets focused on possible price manipulation. The commission had no comment on Friday's surge other than to say officials are monitoring the markets closely.
In other Nymex trading, heating oil futures were down 4.8 cents to $3.9260 a gallon, while gasoline prices slipped 7.55 cents to $3.4725 a gallon. Natural gas futures fell 3.8 cents to $12.655 per 1,000 cubic feet.
AP Business Writers Adam Schreck in New York, Matthew Perrone in Washington and Malcolm Foster in Bangkok, Thailand, contributed to this report.