Oil dropped briefly below $56 a barrel on Friday for the first time in five months as investors grew confident that hefty fuel stockpiles would see the world's consumers through cold winter weather.
Unseasonably warm temperatures have allowed refiners in the United States, the world's biggest consumer, to pile up crude and oil products depleted by a savage hurricane season.
Storage tanks are also brimming in Europe, where gas oil inventories in the trading hub of Rotterdam leapt to a new six-year high.
US crude settled down 20 cents to $56.14 a barrel after falling as low as $55.40, the lowest since June 15. London Brent crude gained 3 cents to $54.88.
Investors have been selling heavily since oil sped to an August record of $70.85, leading industrialised nations to release emergency oil to offset US refinery and oilfield losses from Hurricane Katrina.
Speculators are betting prices will keep falling and have pushed net short positions to the lowest level in more than two years. Prices have fallen more than $14 from an August 30 peak.
This could leave the market vulnerable to a price spike, especially if predictions of a colder-than-normal winter begin to drain inventories, analysts said.
The price of the Organisation of the Petroleum Exporting Countries' basket of crudes fell below $50 a barrel for the first time since early June on Thursday.
Breaking that barrier may prompt some cartel members to raise the possibility of supply cuts at its next meeting on December 12 in Kuwait.
Venezuela's Minister of Energy and Petroleum Rafael Ramirez said on Friday Oil cartel Opec should consider cutting production if crude prices continue to fall.
US Energy Secretary Sam Bodman said on Friday he was confident Gulf producers will keep world oil markets well-supplied and will be able to expand their crude production capacity.
Bodman will attend a meeting of oil consuming nations and producers on Saturday to discuss calls for greater oil market transparency and investment in production capacity.