Oil prices slumped below $52 a barrel for the first time since June 2005, extending their decline to 15% since the start of the year.
The heavy losses came as a mild start to winter has slashed fuel demand in the United States and other top consumers, and as poor returns force investors to alter their trading strategies, experts said.
"Continued fund selling is pushing prices down," said Eric Wittenauer, an analyst at A.G. Edwards. "The selling, part reallocations and part liquidations, is bearish for commodities such as crude."
U.S. light crude ended pit trading down $2.14 or nearly 4% to $51.88 per barrel, the lowest since May 27, 2005. London Brent crude also down about $2. Both benchmarks are down
roughly 15% since the start of the year. Light crude is down 33% from its all-time high of $77.03 set on July 14 last year. Natural gas, heating oil, and gasoline all fell sharply today as well.
"The price move is exaggerated," said Kevin Norrish of Barclays Capital. "The catalyst was the warm weather, the selling broke down key support levels, and it has been technical selling ever since."
The U.S. National Weather Service said that warmer-than-normal weather was expected to prevail in the northern United States through spring, extending a balmy stretch that has undercut use of heating oil and natural gas in the world's top consumer.
Merrill Lynch analysts estimated "synchronous global warm winter weather" had reduced oil demand in industrialized countries by 300,000 barrels per day in December and was likely to cut back January demand by 600,000 bpd.
The soft demand has caused U.S. heating oil stocks to rise during a time of the year they normally fall.
Adding pressure to oil prices, Russia restarted crude exports through a pipeline to Europe after a three-day halt caused by a trade dispute with Belarus.
Financial funds appear to have sunk less money into oil this year than some speculators had expected, analysts said.
Investors who had bet on a repeat of the huge fund flows into the market of early 2006 have been disappointed.
OPEC President Mohammed al-Hamli told Reuters the Organization of Petroleum Exporting Countries was very concerned about the sharp fall in oil prices.
He said the cartel would take further action to stabilize the market, if needed, but no decision had been taken on holding an emergency meeting.
"We are monitoring the market on a daily basis. The price drop is a big concern," Hamli, who is also the energy minister of the United Arab Emirates, told Reuters in a telephone interview.
He said markets were oversupplied and high global fuel inventories could continue to rise in the second quarter of the year, if the mild weather continued.
Saudi Arabia, OPEC's top producer, told Asian refiners that it would reduce exports in February, in line with OPEC's agreement to cut supply from Feb. 1.