Crude oil fell on speculation that the recession in the U.S., the world's biggest energy-consuming country, will deepen and reduce demand, Bloomberg reported.
Oil fell as much as much as 4.4 percent after a government report showed that U.S. consumer spending fell in December for a record sixth consecutive month. Gasoline and heating-oil futures tumbled because U.S. refiners and the United Steelworkers union extended negotiations on a new contract over the weekend, delaying a potential strike.
"The market is under pressure because the strike has been averted," said Tom Bentz, senior energy analyst at BNP Paribas in New York. "We are under the same economic pressure that's been weighing on the market. We continue to get negative economic data, which signals weak demand."
Crude oil for March delivery fell $1.63, or 3.9 percent, to $40.05 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures touched $39.83, the lowest since Jan. 20. Prices are down 10 percent this year and are 55 percent lower than a year ago.
Gasoline futures for March delivery declined 11.72 cents, or 9.2 percent, to $1.1515 a gallon in New York. Heating oil for March fell 8.95 cents, or 6.2 percent, to $1.3445 a gallon.
"The reduced strike threat is sending prices lower," said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. "The assumption is that they will get a deal done if they decided not to strike."
The United Steelworkers union didn't receive a new proposal from Royal Dutch Shell Plc yesterday, Lynne Baker, the union spokeswoman, said.