Oil prices extended a streak of losses on Tuesday as dealers anticipated that strong Opec output and recovering production in the United States would boost lean stockpiles in time for peak winter heating demand. US light crude futures were 57 cents lower at $46.30 a barrel, bringing them more than $9 from a record $55.67 hit in late October. London Brent crude was down 54 cents at $42.50 a barrel. "This is a continuation of the downtrend that has been in the market for the past two weeks," said Mike Fitzpatrick, vice president for energy risk management at Fimat USA.
Strong production from the Opec cartel and slowing global demand growth has helped to replenish consumers' inventories and prompted speculative funds to shift money out of oil following a 40 percent price rally this year.
Recovering production from the US Gulf of Mexico, disrupted by powerful Hurricane Ivan in September, has also helped push up stockpiles. Output in the region is running near 90 percent of its 1.7 million-barrel-per-day (bpd) capacity, according to the latest government data.
US crude inventories have risen by 22 million barrels, or 8 percent, in the past seven weeks and analysts predict another 1.4 million barrel rise when the government releases its weekly supply status report on Wednesday.
"With stocks likely to show an eighth consecutive build and some unwanted barrels in circulation even in some of the sweeter grades, it looks as if the US market has sufficient supply for the balance of the quarter," said Tim Evans, analyst at IFR Energy Services.
Opec's high sulfur, or sour, grades of crude oil have sunk even faster than international benchmarks. The cartel's reference crude oil basket has fallen to its lowest level since mid-July at $36.11.
Opec's second top producer Iran believes cartel members needs to cut production back to official quota levels to bolster prices for its lower-quality supplies, an Iranian oil official said Tuesday.
The 10 Opec members with quotas pumped 27.89 million barrels per day (bpd) in October, 890,000 bpd above a ceiling that came into force on November 1, a Reuters survey found.
"We are cautioning producers to be more vigilant and fully adhere to quotas," said an Iranian oil official. "Members should think of trimming production to the level of quotas."
While prices remained on a downward track, analysts said low stocks of heating oil in the big consuming markets of the United States, Germany, and Japan could spur a supply squeeze should winter hit early or hard.
This could prompt a fresh influx of buying from funds, which have cut their net long position in US crude to the lowest level in a year and hold a net short in heating oil, according to regulatory data on Monday.
"We're in a major consolidation phase, although I still see the potential for one more rally this winter," said Katherine Spector of J.P. Morgan bank.
US distillate stocks, including heating oil, are expected to climb by 700,000 barrels as refineries crank up production at the end of the maintenance shutdown season.
Temperatures in the key heating-oil consuming region of the US Northeast have been below normal in recent days and are expected to warm this week before dropping again next week.
Adding to uncertainty, Iraqi oil infrastructure continued to come under attack by saboteurs, who blew up five oil wells west of the Kirkuk oil centre on Monday and set fire to a storage tank at a pumping station along the main export pipeline to Turkey.
Flows through Iraq's northern oil export pipeline have fallen to 200,000 barrels per day after the attacks and could remain below capacity for over a month, an oil official said.
Iraq was pumping around 500,000 bpd through the northern pipeline to Turkey earlier this month.
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