Oil settles below $129
Crude prices tumble as traders step back following last week's record run-up.
NEW YORK (CNNMoney.com) -- Oil prices fell sharply Tuesday, after hitting a series of record highs in previous sessions, as the dollar strengthened and traders pulled back amid concerns of softening demand.
Light, sweet crude traded down $3.34 to settle at $128.85 on the New York Mercantile Exchange. The oil market was closed on Monday in observance of the Memorial Day holiday.
Crude prices rallied last week ahead of the holiday weekend, which marks the beginning of the season when Americans typically do their most driving. On Thursday, oil prices hit a record $135.09 a barrel, one day after soaring above $130 for the first time. Concerns about short supplies and geo-political instability also helped fuel the rally.
"You usually see prices bid-up before the holiday," Stephen Schork, an oil industry analyst and publisher of the Schork Report. "Today we're seeing some of the air let out of the balloon."
If the market follows its typical seasonal pattern, Schork thinks crude's "highs have been put in." Though he added that the market has seen "a tremendous amount of support" and the seasonal pattern may not hold this year.
A stronger dollar also helped pressure oil prices Tuesday. The euro bought $1.570, down from $1.5774 on Monday evening in while the British pound fell to $1.977 from $1.982 in New York.
Investors who buy oil futures to hedge against inflation often sell the commodity when the dollar rises. And a stronger dollar makes oil less attractive to overseas buyers.
Meanwhile, the current national average price for a gallon of regular gasoline is $3.937, up slightly from $3.936 yesterday, according to AAA.
Many analysts are expecting the high price of gas to have crimped sales over the holiday weekend. But the Department of Energy's report on gas will not be released until next week.
Separately, the Conference Board announced Tuesday that its Consumer Confidence Index fell more-than-expected in May to 57.2, the lowest level since October 1992. The index also showed that Americans are growing more concerned about their jobs and more pessimistic about business conditions.
As consumer confidence wanes and prices at the pump continue to climb, demand for gasoline has softened. Tuesday's report provides further "anecdotal evidence that demand is drying up," Schork said. 
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