Oil prices fell 1 per cent this morning, despite fresh signs that Opec favours a second output cut next month, focusing instead on high US stockpiles.
Despite the drop, prices for prompt January crude stood more than $2 higher than the prior front-month December contract, which expired on Friday after closing at a 17-month low amid a rush to roll or book out prompt-month positions.
US crude futures for January delivery fell 62 cents to $58.35 a barrel by 0722 GMT, once again trading in the $56-$62 price range that has defined prices since early October. December crude closed at $55.81 on Friday after a two-day, $3 rout.
Brent crude was down 55 cents at $58.44 a barrel.
Prices tumbled sharply late last week on a combination of factors - macro concerns triggered by weak US economic data; a commodities-wide bail-out by speculative investors; and data showing robust US crude oil inventories.
Warmer than usual weather in the US Northeast has also depressed prices as it dims demand for heating fuel.
Analysts at Goldman Sachs said the weakness of prompt US crude was isolated and that other markets were already responding to Opec's move to curb supplies. But others said more action may be needed.
"Crude is still in bad condition, we need more time to see a decrease in US stocks," said Ken Hasegawa, manager at Japanese commodities brokerage Himawari CX. "Opec should decide another cut in Dececember...by at least 1 million bpd." Opec ministers appeared to be lining up expectations for another output cut when they meet in Nigeria on December 14, deepening the 1.2 million barrel per day cut imposed this month, even though analysts say only about half those curbs may materialise.
Qatar Oil Minister Abdullah al-Attiyah said on Saturday that Opec had "no choice" but to agree another reduction in production - possibly by 500,000 to 1 million bpd - because markets were still oversupplied.
He also said that a $60 crude price was "moderate for consumers" - among the strongest signals yet that the group will not tolerate anything below that.
Yesterday Algeria's Energy and Mines Minister Chakib Khelil also said that another cut was possible due to fears that prices could slump again in the second quarter. It remains to be seen what impact the contract expiry will have on Opec's decision, however.
Gains may also be offset by signs of tepid US economic growth. In October the pace of US home construction sank to the lowest level in more than six years, while new building permits fell to the weakest in nearly nine.
A wave of funds selling amid fears of slower expansion in the world's top economy knocked the whole commodities complex lower on Thursday, although metals and crop prices rebounded on Friday.