Oil extended a two-day price slide on Tuesday as mild US weather cut heating oil demand in the world's top energy consumer. US crude settled down 30 cents to $58.28 a barrel, after falling $1.01 on Monday, while London Brent crude gave up 21 cents to settle at $58.84.
Unseasonably mild temperatures in the United States were expected to leave heating oil demand about 16 percent below normal this week, the National Weather Service said.
US heating oil stocks are nearly seven percent above last year's level. Analysts polled by Reuters have predicted inventory data for release on Wednesday would show distillate stocks - including heating oil - had fallen by only 400,000 barrels last week.
"Inventory levels are too high, with heating oil inventories ultra-high. But energy demand should pick up with winter," Tony Nunan, manager at Mitsubishi Corp's risk management unit, said. High levels of fuel stocks prompted the Organisation of the Petroleum Exporting Countries (Opec) last month to announce an output cut of 1.2 million barrels per day from November 1.
But US customers of Saudi Arabia, the world's largest crude exporter, said on Tuesday the Opec member had not cut their December supplies. The kingdom hiked shipments to Asia for December and left European supplies unchanged, buyers said on Monday. The producer group believes prices should be between $55-$60 a barrel, a senior Kuwait energy official said on Tuesday without specifying whether he was referring to Opec's reference crude basket price or international oil prices.
Since the beginning of October, US and Brent crude have traded between around $58 to $62 a barrel, with speculative hedge funds playing a part in keeping prices in this range.
They have sold when the price begins to break higher and bought as it nears the bottom of the six-week range, analysts and traders said. The latest data from US regulatory body the Commodity Futures Trading Commission showed speculators on the New York Mercantile Exchange cut net crude short positions in the week ended November 7, taking their overall position to around neutral. "This lack of commitment and a net position which is neutral should partly explain the flat price swings that we currently have," Olivier Jakob, analyst at Petromatrix, said.