NEW YORK – Oil prices fell 3.5 percent to a three-month low on Tuesday as mild winter weather sapped demand in the U.S. Northeast, the world's largest heating oil market.
U.S. light crude (search) settled down $1.52 at $41.46, the first time it has broken below $42 since late August. Prices have fallen almost 17 percent since last week. London Brent crude fell $1.38 to $38.27 a barrel.
The market shrugged off calls from OPEC (search) ministers to rein in overproduction, and paid little heed to continued outages in oil production in the North Sea and Nigeria.
Just over a month ago, with the global oil supply chain straining to meet soaring world demand, such outages pushed crude prices to record highs.
"The mild weather is a drag on the market and until we see a shift in the weather, people will be selling," said Tom Knight, a trader at Truman Arnold in Texas.
Weather forecasts in the Northeast, home to 78 percent of the nation's heating oil users, are for above-normal temperatures this week, easing market concern about a fuel crunch this winter.
Mild weather has cut global oil demand 492,000 barrels per day in October and November, Goldman Sachs said in a report, and could mean continued increases in consumer stockpiles.
U.S. distillate supplies, which include heating oil and diesel, are expected to have risen 1.6 million barrels in the week ended Dec 3, the third rise in a row.
The Energy Information Administration (search) will release its weekly petroleum inventory report Wednesday morning.
The bearish picture has raised a red flag for the OPEC oil cartel, whose members will meet in Cairo on Friday to discuss a possible tightening of their output policy.
The steep fall in prices from the late-October record high for U.S. oil of $55.67 a barrel has spurred some OPEC members to urge a clampdown on quota-busting.
"All options are open at the upcoming OPEC ministerial meeting and it may be appropriate to comply with output quotas in the first stage...and if prices continue to decline then we would discuss cutting the output ceiling," UAE Energy Minister Mohammed al-Hamili told reporters on Tuesday.
The formal output ceiling for OPEC members with quotas is 27 million bpd, but a U.S. government survey on Tuesday showed production in November at 27.65 million bpd.
The International Energy Agency (search) (IEA), which advises industrialized nations on energy policy, said on Tuesday that oil prices were still too high for economic growth and urged OPEC producers meeting this week to act cautiously.
"We think prices are still high. It is not the time to say they are too low, certainly not," IEA executive director Claude Mandil told Reuters.
But other analysts said an OPEC cut is inevitable to stem the price slide.
"The question facing the oil markets... is not whether OPEC will cut production but by how much and when," Barclays Capital said in a report on Tuesday.
If OPEC does not change output levels, stocks could rise by nearly three million bpd in the second quarter next year, the Barclays report said.
OPEC ministers are also expected to give clues as to what the group sees as a fair price for its basket of crudes, which on Monday stood at $34.53 a barrel, and has been above the official target of $22-$28 a barrel for a year.
While OPEC is not expected to formally change the target range, the weakness of the dollar has led members to revise higher their ideas of a fair price, with many pushing for around $30 a barrel.
An attack by militants on the U.S. consulate in Jeddah on Monday claimed by al Qaeda spurred concerns about the security of supplies from the world's biggest producer. The attack left at least nine people dead.
Elsewhere, around 120,00O barrels per day of Nigerian oil production is shut in as villagers there protest over jobs. In the Norwegian North Sea, 205,000 bpd of output is shut in during repairs to an oil platform.