Oil fell by more than $1 on Tuesday on expectations that Opec may increase output and following a decline in US share prices. US oil fell $1.02 to $96.68 a barrel, after dropping 48 cents in the previous session. London Brent crude fell by 84 cents to $94.48 a barrel.
"Opec has been making a lot of noise about an output increase and that's why we see weak numbers today," said Tony Nunan, risk manager for Mitsubishi Corp Iran's Oil Minister Gholamhossein Nozari said at the weekend that some members of the Organisation of the Petroleum Exporting Countries were advocating an increase in production when the cartel meets in Abu Dhabi on December 5.
Oil prices were also depressed by a decline in US shares, with major indices down around 2 percent on Monday on investors' concern that rising mortgage defaults and credit market losses would drag on the world's biggest economy.
"Some people are worried that US economy is heading towards a recession because that will slash the demand for oil," said Nunan. The weak stock market pushed the dollar to a fresh two-and-a-half-year low against the yen. The weak dollar, coupled with investment inflows into energy and concerns over winter supplies, has pushed up the average forecasts for oil prices next year to about $75 a barrel, from an average of $70.20 so far this year, according to a Reuters monthly poll.
The onset of colder weather in the US Northeast, a major consumer of heating oil, has also bolstered prices as traders bet that higher winter demand will strain below-normal inventories.
Temperatures in the region on Monday were near their norms for this time of year, according to The Weather Channel Web site (www.weather.com), but the US National Weather Center's six- to 10-day outlook calls for colder-than-usual conditions. US distillate inventories, which include heating oil, are likely to fall by 1.4 million barrels when data for last week is reported on Wednesday. 800,000 barrels see down crude stocks while gasoline stocks were expected to rise by 1.0 million barrels, according to a preliminary Reuters survey.