Oil fell to a new five-month low today as expectations OPEC would leave formal output targets steady outweighed concerns over the threat of Hurricane Ike to US Gulf of Mexico energy infrastructure.
OPEC ministers meeting in Vienna were expected to keep output targets steady with calls from some to trim excess supply above agreed limits, about 790,000 barrels per day (bpd) according to some estimates.
Officials said oil prices - which have tumbled nearly 30 percent from record highs over $147 a barrel in July - are now more reflective of fundamentals.
"I think everything is in balance - inventories are in a healthy position," said Ali al-Naimi, oil minister for Saudi Arabia, the world's top exporter.
US crude fell $1.57 to $104.77 by 12.22pm after hitting a fresh five-month low of $104.23 a barrel earlier.
London Brent crude traded down $1.30 to $102.14.
"OPEC leaving quotas unchanged is a little disappointing for the market," said UBS oil strategist Thomas Stenvoll.
Traders are keeping a close eye on Hurricane Ike, which swept toward western Cuba as a Catagory 1 storm early today and is expected to strengthen as it aims for the Gulf of Mexico, home to a quarter of US oil production and 15 per cent of natural gas output.
Energy companies - still recovering from Hurricane Gustav last week - began shutting production as Ike approached.
The impact of Gustav is expected to be reflected in weekly US government inventory data, due out tomorrow.
"We will see more than the usual amount of draws coming out of inventories both this week and next," said Edward Meir of broker MF Global.
A Reuters poll of analyst forecast data would show a 4.3 million barrel draw in US crude oil stocks last week. Gasoline stocks were seen down by 4.2 million barrels and distillates by 2.5 million barrels.
Gasoline stocks were seen falling by 4.2 million barrels and distillates by 2.5 million barrels. Slumping demand in the United States and other big consumer nations has sent crude off its record peak.