Crude oil futures settled down, but news that Russia and Belarus could not reach a compromise on their oil pipeline dispute lifted prices from early lows, analysts said.
"The Russia/Belarus news definitely lifted prices," said Steve Bellino, senior vice president for energy risk management at Fimat USA.
Light, sweet crude traded as low as $53.88 in electronic trading early. The day's high was $56.20.
The low was the weakest front-month crude price since the $53.05 hit on June 13, 2005.
In London, Brent crude was also down.
Russia and Belarus have failed to reach a compromise over oil supplies to Belarus and transit to Europe, Russia's Economy Minister German Gref told a news conference.
Earlier, Russian President Vladimir Putin called on his government to continue talks with Belarus. Putin also said his cabinet should discuss with oil firms reducing oil production if no compromise was found.
Bellino and other analysts also pointed to short covering ahead of U.S. inventory reports due Wednesday and technical buying triggered after a sell-off that took crude prices below $54 in electronic trade sent OPEC into consultations over what additional actions might stem the slide.
"After taking out that key $54.86 low from November earlier, the Russia news and short covering ahead of the data has helped pare the loss," said Phil Flynn, analyst at Alaron Trading.
Persistent unseasonably mild winter weather, especially in the U.S. Northeast, the key heating oil consuming region, have helped send prices plunging.
Heating demand in the Northeast was forecast to average below normal for the next five days, with the six-to-10-day forecast for temperatures to average above normal, though turning colder late in the period, private forecaster DTN Meteorlogix said on Tuesday.
Heating oil and unleaded gasoline futures seesawed with heating oil dropping to its lowest price since $1.4530 was hit on June 1, 2005.
Analysts have also cited investors selling positions in commodities indices helping to fuel the new-year price drop.
"What's going on is there has been some fund selling," Deutsche Bank Chief Energy Economist Adam Sieminski said during a conference call today.
The early price plunge prompted OPEC's president to hold intensive phone consultations with fellow oil ministers on further action by the exporter group to stem a sharp price drop, cartel sources said today. But an OPEC spokesman said later the group is not yet discussing increasing the size of a 500,000 barrels per day oil supply cut scheduled to take effect on Feb. 1.
Oil markets will get a fresh U.S. inventory snapshot on Wednesday morning. Tuesday's expanded Reuters analyst poll yielded a forecast for U.S. crude inventories to be slightly lower, down 500,000 barrels last week.
Distillate supplies were seen up 2.2 million barrels and gasoline up 2.6 million barrels, with refinery capacity up 0.1 percentage point.
NYMEX February crude support, charted at $54, was breached in electronic trading. Resistance was charted at $56.
Heating oil bounced on support charted at $1.52 in electronic trading. Resistance was charted at $1.55.
RBOB's support, charted at $1.44, gave way in electronic trading. Resistance was charted at $1.50.