NEW YORK — Oil prices swung lower Tuesday, falling below $107 a barrel as traders cashed in profits a day after crude rocketed to its biggest one-day gain ever — an epic rally apparently triggered in part by a technical fluke.
It was crude’s first down session in five days. A slightly stronger dollar also weighed on prices as investors who had bought the commodity as a hedge against inflation sold their contracts; the dollar took a steep dive Monday, helping to fuel oil’s 16 percent rise that day.
Still, oil market watchers say crude is showing early signs that it may be poised for another big climb. They say tightening global supplies, weakness in the dollar and nervousness about the U.S. government’s $700 billion financial rescue plan could soon prompt edgy investors to shift funds out of equities and send a burst of capital back into safe-haven commodities like oil — potentially pushing prices back toward record levels and causing consumers more pain at the pump.
Oil prices are up about $15 in the past week, momentarily halting a precipitous two-month slide from the all-time high of $147.27 a barrel reached July 11.
‘‘We could be back on the road toward $150 a barrel,’’ said Stephen Schork, an analyst and oil trader in Villanova, Pa. ‘‘If we can’t get any stability in the dollar and there’s further weakening in the economy, my fear is that it’s deja vu all over again. We’re going to see a lot of money piled back into commodities as an inflation hedge.’’
Tuesday’s trading, however, was driven by investors seeking profits after previous day’s run-up and the stronger greenback.
Light, sweet crude for November delivery fell $2.73 to $106.64 in midday trading on the New York Mercantile Exchange. The contract jumped $6.62 to settle at $109.37 on Monday.
The October contract, which expired Monday, surged as much as $25.45 to $130 a barrel before falling back to settle at $120.92, up $16.37 — the biggest one-day gain ever.
Oil traders said the hyperbolic move was likely the result of an unusually severe ‘‘short squeeze,’’ a trading occurrence that happens when investors who bet that oil prices would fall rush to cover positions before the contract’s expiration. Failure to do so would require them to take delivery of the physical crude; traders almost always cover their positions rather than take delivery, even if doing so means absorbing huge losses.
Speculation grew Tuesday that a big purchase of physical crude may have forced the short-selling rally. Analyst said it appears that a major energy firm faced with crude shortages after the passage of Hurricanes Ike and Gustav was forced to step in at the last minute and secure supplies before it ran out. That would have sharply limited the number of Nymex oil contracts available for short-sellers to buy, a sudden injection of scarcity that may have helped drive prices skyward.
‘‘I think one of the majors went off long contracts because they needed the barrels. So all of the sudden there weren’t as many players available to sell,’’ Schork said.
Still, the extent of the rise stunned veteran oil market watchers and prompted the U.S. Commodity Futures Trading Commission to open an investigation into possible illegal manipulation.
Crude’s climb over the past week comes amid greater uncertainty about the economy and a gradual shrinkage in global oil output. OPEC’s decision earlier this month to cut production by 520,000 barrels a day and output shutdowns and damage to oil installations on the Gulf of Mexico coast caused by Ike and Gustav helped spark the jump in oil prices from $90 a barrel last week.
Because of the supply squeeze, oil pricing appears to have entered a trend known as ‘‘backwardization,’’ analysts say, a trend whereby front-month oil contracts, or oil available for purchase in the near term, is being sold for more than contracts several months out, suggesting the market is reacting a coming supply crunch.
‘‘The market is telling you that it’s fearful about futures supplies, so it’s starting to place a premium on current oil prices,’’ Schork said.
A resurgence in crude prices would eventually lead to higher pump prices, which have steadily fallen since jumping to a record national average of $4.114 a gallon on July 17. A gallon of regular shed about a penny overnight to a new national average of $3.726, according to auto club AAA.
In other Nymex trading, heating oil futures fell 5.82 cents to $3.0052 a gallon, while gasoline prices dropped 11.94 cents to $2.5844 a gallon. Natural gas futures rose 20 cents to $8.143 per 1,000 cubic feet.
In London, November Brent crude fell $2.04 to $104 a barrel on the ICE Futures exchange.
Associated Press writer Alex Kennedy in Singapore and Louise Watt in London contributed to this report.