Oil prices eased further on Tuesday, as the head of the OPEC cartel said that markets were well-supplied with crude and traders continued to take profits from this year's 40 percent rally.

London Brent crude (search) fell two cents to $40.60 a barrel, following a 61 cents drop on Monday. U.S. light crude fell 77 cents to $43.22 a barrel, catching up after being closed on Monday for the long Labor Day weekend.

Brent prices now stand nearly five dollars below the $45.15 record high hit last month, as higher production from the OPEC cartel helps ease concern about tight world supplies.

OPEC President Purnomo Yusgiantoro (search) said in Sydney that global markets had an oversupply of about 1.5 million barrels per day (bpd) of crude oil. Cartel ministers meet on Sept. 15 to set supply policy for the fourth quarter.

"If you look at the supply and demand balance, the world has enough oil," Yusgiantoro told reporters at an industry conference in Sydney. "Why is the price so high, it's the political premium."

Top world oil exporter, Saudi Arabia, is estimated to have pumped 9.5 million bpd in August, up 250,000 bpd from July.

The kingdom, which has pledged to supply customers all the crude they want to stem this year's price rally, slashed prices for westbound shipments of October-loading crude in an effort to entice buyers to take its crude.

"The market certainly looks to be taking a step back and looking at the fundamental picture after a very volatile period over the last couple of months," said Daniel Hynes, industry analyst at ANZ Bank in Melbourne.

Many analysts do not expect prices to fall far as rapid world demand growth and tight spare production capacity magnify the impact of supply disruptions in Iraq.

Oil shipments along Iraq's northern pipeline to the Turkish port Ceyhan (search) remained shut on Monday by a sabotage attack last week and repairs were expected to take at least a week.

A threat to U.S. oil production in the Gulf of Mexico faded after Hurricane Frances (search) fizzled out and Royal Dutch/Shell restored shut-in production.

But another storm, Hurricane Ivan (search), was headed across the Atlantic toward Barbados and the eastern islands in the Caribbean. Non-essential oil workers were evacuated from some oil and gas rigs off Trinidad and Tobago.

Demand for gasoline in top world consumer the United States is now passing its summer peak, and traders are switching their focus to heating fuels consumption which rises to a seasonal high during the northern hemisphere winter.

Last week, the U.S. government said national crude stocks falling to the lowest level in five months, while distillate supplies, which include heating oil, rose two million barrels to stand at a 1.2 million barrel surplus versus a year ago.

European supplies of gas oil threaten to tighten as the region's refineries go into extensive maintenance to prepare for new environmental rules on diesel fuel, and German households stock up ahead of winter.

European forward stock cover, taking account of increased demand, is the lowest in 10 years according to SG bank.