Oil falls below $72 after sharp rally in volatile market

Brent oil fell below $72 a barrel on Tuesday, giving up some of its gains in the previous day's rally from five-year lows, as traders voiced uncertainty over whether the market had reached a floor or would keep falling.

"I am not surprised the price is going down. The market is looking for a renewed sense of direction and trying to figure out if we have hit the bottom or if we are about to go lower again," said Michael Hewson, an analyst at CMC Markets.

"I think there is a lot of ebb and flow, and at the moment there is a battle going on between the bulls and the bears in light of the really strong rally we saw yesterday."

Brent was down $1 at $71.54 by 9:40 a.m. ET, after jumping 3.4 percent on Monday. U.S. crude was down $1.40 at $67.60 a barrel.

Oil has fallen since June to reach its lowest since October 2009 on Monday as new supplies of high-quality, light crude from North America overwhelmed demand, which in turn has suffered from slower economic growth in China and Europe.

The Organization of the Petroleum Exporting Countries had been expected to trim output last week to try to rebalance the market but agreed to maintain existing production targets.

Analysts said the market was going through a volatile adjustment phase that would lead to erratic price movements until a more stable pricing environment was found.

"The physical crude oil market is well supplied and that oversupply will last into the second quarter of next year," said Olivier Jakob, oil analyst at Petromatrix in Zug, Switzerland.

"The market is trying to find some equilibrium level."

French bank Societe Generale cut its U.S. crude and Brent forecasts to an average of $65 and $70, respectively, for 2015 and 2016.

The two benchmarks touched five-year lows on Monday, with Brent dipping to $67.53 a barrel and WTI touching $63.72, before recovering to settle up on the day.

Analysts say much lower oil prices may force some producers out of the market.

As crude prices tumble, offshore drillers are considering "warm stacking" their rigs to take them temporarily off the market. Low prices also threaten unconventional producers that came to the market when prices were higher.

New data suggested that a much-anticipated slowdown in the U.S. shale rig count had started.