Oil prices dropped further from recent 10-month highs on Monday after forecasters predicted a deep chill in the United States, the world's thirstiest oil consumer, would loosen its grip and lower demand for heating fuel.
US light crude on the New York Mercantile Exchange fell 66 cents, or nearly six percent, to $34.28 a barrel, and in London, Brent crude was down 70 cents, or 2.3 percent, at $30.26 a barrel.
But the biggest losses were seen in heating oil, with NYMEX February futures trading nearly five percent lower at 97.60 a gallon, after an afternoon sell-off sparked by forecasts of slightly moderating temperatures in the US Northeast.
Freezing weather in the US Northeast, a huge consumer of heating oil, last week pushed energy prices higher, with US crude hitting more than $36, its highest since the Iraq war.
But on Monday major US forecasters said some of the extreme cold should abate, although temperatures will still remain below normal for the time of the year.
Prices have also softened since Opec giant Saudi Arabia signalled last week a softer stance on producers' need for high oil prices to counter the decline in the value of the dollar.
Saudi Oil Minister Ali al-Naimi told delegates at the World Economic Forum in Davos on Friday that the kingdom would continue to aim for a central $25 target for a reference basket of crudes.
"I think a price of $25 a barrel for the Opec basket is the right price," Naimi said. Opec's price index was most recently estimated at $30.71 a barrel.
Naimi had said late last year that higher oil prices were justified because of the slump in the dollar, the currency used in oil trading.
His latest comments come ahead of a meeting planned by Opec in Algiers for February 10 where it will consider production policy.
News from Iraq limited the losses as the US Army said Baghdad was unlikely to resume crude exports along its vital northern oil pipeline to Turkey for months, much later than the early spring resumption initially hoped for.
Since last year's US-led invasion Iraq has been restricted to crude exports from its southern oilfields as saboteurs repeatedly bomb segments of the northern line.
The pipeline could add some 800,000 barrels per day (bpd) to Iraq's crude exports, now pumping at around 1.6 million bpd from its Gulf terminal in the south.
"It will take months before the Iraq-Turkey pipeline can start working again because several factors have to be co-ordinated such as repairs and security," said Richard Dowling, a spokesman for the Restore Iraqi Oil directorate of the US Army Corps of Engineers, which works with the Iraqi oil ministry.
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