The losses added to a drop which has knocked oil from peaks over $99 a barrel in late November and came as OPEC ministers gathering in Abu Dhabi for a Wednesday meeting insisted supplies are sufficient to meet winter demand.
U.S. crude settled down 99 cents to $88.32 after tumbling as low as $87.34 earlier. London Brent crude settled 27 cents lower at $89.53 a barrel after ending above U.S. oil for time since August 23 on Monday.
Concerns U.S. oil demand growth could be hit by the subprime mortgage crisis, which helped send prices down 10 percent since peaking at $99.29 on November 21, continued to fuel bearish market sentiment.
A new U.S. intelligence report by the National Intelligence Estimate (NIE) saying Iran halted its nuclear weapons program in 2003, contradicting the Bush administration’s earlier assertion that Tehran was intent on developing a bomb, also helped push prices down on Tuesday.
“The chances of a unilateral or pre-emptive strike on Iran decreases with the NIE’s announcement and make it much more difficult for the Bush administration to go down that path, so I think it is near-term bearish for prices,” said Eric Wittenauer, analyst at AG Edwards.
Tensions between Tehran and Washington have supported prices in the record rally that sent prices up 40 percent from August to late November, which was sparked by concerns of a supply shortfall ahead of the Northern Hemisphere winter.
U.S. Energy Secretary Sam Bodman on Tuesday reiterated calls for OPEC to increase production to bolster supplies at Wednesday’s meeting. Officials from Qatar, Venezuela, Iran and Libya have spoken against the need to pump more oil. OPEC’s core Gulf producers, led by Saudi Arabia, have avoided comment on whether the group might still opt for an output increase to prevent crude heading back towards $100 a barrel. “All options are open,” said Ali al-Naimi, the oil minister for leading OPEC producer Saudi Arabia.
OPEC ministers have repeatedly blamed speculators for high oil prices and say supplies are sufficient to meet winter demand.
“We think we’re producing enough oil now to build stocks but we’re worried that prices are too high,” said a senior delegate in the Organization of the Petroleum Exporting Countries ahead of Wednesday’s meeting.
“We may have to send a signal to the market that we’re serious about bringing down prices and the only way we can do that it is with an increase, maybe a modest increase.”
Traders said the release of U.S. inventory data on Wednesday — which last week showed a build in stocks at the key Cushing, Oklahoma, hub — will give further price direction.
A poll of analysts by Reuters ahead of Wednesday’s U.S. inventory data showed crude stockpiles probably fell 800,000 barrels in the week to November 30. Distillate stocks were seen down 300,000 barrels.
(Reporting by Matthew Robinson and Richard Valdmanis in New York, Santosh Menon in London, Luke Pachymuthu in Singapore; Editing by Marguerita Choy)
