Oil sinks from 10-month peak
Crude futures drop 3% after earlier highs, ahead of inventory data.
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NEW YORK (Reuters) -- Oil prices sank 3% Tuesday as dealers rushed to take profits from a rally that had culminated in a 10-month peak earlier in the day.
Crude oil dropped $2.32 to settle at $72.05 a barrel, down from a peak of $75 earlier in the session.
"It looks like crude tested the $75 level and failed," said Tom Bentz, a trader with BNP Paribas.
Players said oil's more than 65% rally this year was being viewed as a good opportunity to lock in profits.
"There's been profit-taking in the energy markets ... there's a feeling that the markets are heavy and are sinking, with crude overvalued by around $20 a barrel," said Tim Evans, analyst at Citi Futures Perspective in New York.
Oil prices had shot up in early trading after U.S. reports showed increased consumer confidence and home prices in the world's largest energy consumer -- adding to a string of encouraging economic indicators.
Wall Street stock indexes climbed to their highest levels since October's plunge on the back of the data, getting further support from news President Barack Obama renominated Ben Bernanke as chairman of the Federal Reserve.
Oil prices, which usually track equities markets closely, could hold around current levels next year, according to a Reuters survey of more than 30 analysts.
The analysts raised their consensus forecast for the fifth straight month on expectations higher fuel demand in an economic recovery would support prices.
The oil market's focus will shift later to weekly oil inventory data.
Analysts in a Reuters survey forecast a drop in crude and gasoline inventories. Middle distillate stocks, including heating oil, were seen increasing.
Last week, crude stocks posted a big fall as refiners boosted operations and imports dropped sharply to hit their lowest level in 11 months, U.S. Energy Information Administration data showed.
Data from the American Petroleum Institute will be released at 4:30 p.m. EDT Tuesday, and the equivalent U.S. government data is due out Wednesday. 
