(AP) SINGAPORE - Oil prices fell to below $87 a barrel Wednesday in Asia, giving back some of the big gain from the previous day amid growing tension between Iran and Western powers.
Benchmark oil for August delivery was down 99 cents at $86.67 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. In London, Brent crude for August delivery was down 98 cents at $99.70 per barrel on the ICE Futures exchange.
The contract jumped $3.91 to close at $87.66 in New York on Tuesday after Iran said it test-fired several ballistic missiles in war games exercises.
The acting commander of Iran's Revolutionary Guard told state TV that the tests were a response to the refusal by Israel and the U.S. to rule out military strikes to stop Iran's nuclear program.
A European Union ban on Iranian oil came into full effect July 1, and analysts expect the sanctions to cut the crude exports of Iran, OPEC's second-largest producer.
The U.S. military has recently doubled the number of minesweepers in the region, giving it greater flexibility to counter any Iranian effort to mine the Strait of Hormuz at the mouth of the Persian Gulf, where about a fifth of the world's oil supply passes.
The latest U.S. supply data suggest demand may be improving. The American Petroleum Institute said late Tuesday that crude inventories fell 3 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted a drop of 2 million barrels.
Inventories of gasoline fell 1.4 million barrels last week, the API said.
The Energy Department's Energy Information Administration reports its weekly supply data Thursday.
Trading volume was light because markets in the U.S. were open for only a half-day Tuesday and will be closed Wednesday for the Independence Day holiday.
Crude has jumped from $77 last week amid optimism that European leaders are making progress toward stabilizing the region's debt and economic crisis. Investors have brushed off recent signs that the global economy is slowing and fueled a rally in stocks and commodities so far this week.
"While markets have reacted favorably to the news following the EU leaders summit, a definitive resolution to the problems in Europe is still a long way off," National Australia Bank said in a report. "The global growth outlook has started to look a little shakier following a recent run of sluggish economic indicators."
In other energy trading, heating oil was down 3 cents at $2.73 per gallon while gasoline futures fell 2 cents at $2.70 per gallon. Natural gas gained 1 cent at $2.91 per 1,000 cubic feet.