LONDON (MarketWatch) — Crude futures hovered around $110 a barrel on Tuesday, as traders mulled whether high oil prices may curb demand.

Light sweet crude for May delivery fell 33 cents to $109.59 a barrel in electronic trading on Globex. The contract dropped 2.5% on Monday, posting its biggest one-day loss in a month.
In its monthly report released Tuesday, the International Energy Agency said that preliminary data for January and February suggest that “high prices are already starting to dent demand growth.”
The IEA’s estimates for global oil-product demand remain largely unchanged for both 2010 and 2011.
Global oil output fell by 700,000 barrels a day to 88.3 million barrels a day in March on reduced Libyan crude supply, the IEA also said.
Oil-rich Libya has been torn by violent political unrest in recent weeks. A cease-fire deal reportedly brokered by the African Union with embattled leader Col. Moammar Gadhafi was rejected by rebel forces on Tuesday.
Libya’s rebel leadership refused to agree to the peace proposal because it did not provide for the departure of Gadhafi, according to reports.
IG Markets strategist Ben Potter said the drop in oil prices came after the International Monetary Fund downgraded its estimate of gross-domestic- product growth for the U.S. and Japan. Potter also cited Goldman Sachs’s exit from a large commodities basket as a drag on oil prices.
In a note to clients, Goldman analysts advised investors to close the “CCCP basket” commodities trade.
“Although we believe that on a 12-month horizon the CCCP basket still has upside potential, in the near term risk-reward no longer favors being long the basket and we are recommending closing the position for a 25% return versus a 28% target,” they wrote.
The near-term crude-price risk is becoming “more symmetric,” Goldman said. “Not only are there now nascent signs of oil-demand destruction in the U.S,, but also the record speculative length in the oil market, elections in Nigeria and a potential cease fire in Libya that has begun to offset some of the upside risk owing to contagion,” it added