Oil extends slide into 2nd day, losing over $5

Light, sweet crude for August delivery fell $5.33 to settle at $136.04, after earlier slumping as low as $135.14. The decline followed a $3.92 slide on Monday, bringing oil's two-day drop to more than $9.

The market's bearish turn this week erases, at least for the time being, the effect of a rally that pushed prices past $145 in a string of record-setting sessions before the Fourth of July.

Analysts attributed much of the recent sell-off to profit-taking, saying traders were cashing in on the previous week's gains. A stronger dollar also helped keep prices lower by discouraging investors from pumping more money into commodities.

At the same time, concerns about global oil supply disruptions subsided and fears that the economic slowdown is spreading moved to the forefront.

"Sagging global equities, which are tipping a lack of confidence in economic growth in both developed and emerging economies, helped trigger the retreat in the energy markets," Addison Armstrong, director of market research at Tradition Energy, said in a research note.

Still, analysts warned the pullback could be fleeting.

"For the time being it's what we call corrective. ... It's a profit-taking pullback that could still be followed by fresh highs down the road," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

Ritterbusch said Tuesday's decline may have gained added momentum when computer models used by large investment funds automatically sold oil contracts once prices fell to a pre-set threshold.

"A significant part of it's technical," he said of the day's trading. "A lot of these funds don't watch supply and demand fundamentals."