Oil fell almost 1 per cent towards $36 a barrel today in holiday-thinned trading, erasing some of the late gains made last week on short covering, with worries about weakening oil demand again at the forefront.
A ceasefire between Israeli forces and Hamas fighting in Gaza, together with the resolution of a gas row between Russia and Ukraine weighed, easing supply fears that had helped put a floor under falling prices.
Activity was thin with the US closed for the Martin Luther King Holiday and ahead of expiry of the February Nymex contract tomorrow, analysts said.
US light crude for February delivery, which expires tomorrow, slid 29 cents to $36.22 a barrel by 1.49am, with only 146 lots traded, having settled up 3 per cent on Friday at $36.51 on short-covering in pre-holiday trade.
The March contract was more actively traded with 1,226 lots changing hands and fell 37 cents at $42.20. London Brent crude fell 47 cents at $46.10.
"The combination of drastic supply cuts with continuing global economic turmoil leading to receding consumer demand will certainly inject uncertainty, and thus volatility, into the energy markets for some time to come," said Jonathan Kornafel, Asia Director of Hudson Capital Energy, a US-based options house.
The International Energy Agency, a leading energy watchdog, cut its estimate for 2009 demand by 940,000 barrels per day to 85.3 million bpd, a fall of about 500,000 year-on-year on Friday as the economic slowdown erodes consumption.
Acknowledging the gloomy market situation, Iran's Oil Minister Gholamhossein Nozari was quoted as saying on Saturday that his Ministry anticipates a crude oil price of about $40 a barrel in 2009.
Falling prices could prompt OPEC to consider reducing output again, Algeria's energy and mines minister Chakib Khelil said on Saturday, adding that he expected a sharp decline in oil demand in the second quarter this year.
Israeli forces began to pull out of the Gaza Strip today following a tentative truce with Hamas after the three-week war, taking some of geopolitical risk premium out of the market.
Reuters