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LONDON - Oil plunged more than $2 a barrel today to its lowest level in a year-and-a-half as mild winter weather in top consumer the United States pushed prices through a crucial technical support level.
Oil is down nearly 12 per cent since the start of the year.
"We are seeing unfettered selling, any and all supportive factors are being ignored," said Fimat in a research note.
By 1655 GMT, US crude fell $1.47 to $54.62 a barrel, after tumbling more than $2 earlier in the session. Brent crude traded down $1.50 at $54.10.
Both international benchmarks were at their lowest since June 2005.
"$55 was very strong support that has been broken and below that is not much," said Olivier Jakob of Petromatrix. "If we close below $55, the next big support level isn't until $50."
Weather forecaster DTN Meteorlogix predicted above normal temperatures for the rest of the week in the US Northeast, extending an extraordinary streak of mild winter weather in the world's largest heating oil market.
US heating oil demand will run about a third below normal this week, the National Weather Service said on Monday.
The steep price drop has rung alarm bells in Opec producers and the group's president, the United Arab Emirates, is discussing further action with member states. But traders remained doubtful that Opec could turn the tide.
"Traders continue to need some convincing that Opec will fully implement production cuts," said Martin Slaney of GFT Global Markets.
The group agreed last month to cut 500,000 barrels per day from Feb. 1, adding to a cut of 1.2 million bpd from Nov. 1. Opec's leading producer Saudi Arabia, and others, have vowed to enforce cutbacks fully.
MORE BEARS
Analysts also warned that prices could fall further as more investment funds shift to short trading positions, a bet that prices will fall more.
Crude traders on the New York Mercantile Exchange slashed net long positions in the week ended Jan. 3, the US Commodity Futures Trading Commission data showed on Monday. Non-commercial speculators have now turned net short for the first time since early November.
"The CFTC data was quite bearish because funds are increasing their short positions and not getting out of the market, which many had expected," Jakob said.
Widespread bearish sentiment has pushed aside news of crude supply disruptions in Europe.
Russia crude supplies were halted this week to Central Europe through the Druzhba pipeline, which meets about a fifth of Germany's demand and crosses the territory of Belarus.
Russia has accused Belarus of stealing oil from the line. The disruption comes one year after Russia's natural gas dispute with Ukraine hit supplies to Europe, and is likely to revive debate about Moscow's reliability as an energy supplier.
The International Energy Agency on Tuesday said the European oil markets could cope with the halt. Russian pipeline monopoly Transneft has not said how long the cut might last.
- REUTERS
