Oil dipped below $78 a barrel on Tuesday, extending a losing streak from last week due to an expected dent in heating demand as northern hemisphere weather turned milder after a prolonged cold spell.
Producer group OPEC trimmed estimated demand for its oil this year in its monthly oil report and said oil inventories remained high enough to cope with any unexpected rise in winter fuel consumption.
That followed the International Energy Agency, which said its monthly report on Friday that the cold spell across major oil consuming countries had done little to boost heating demand.
But some support came from China, the world's second largest oil consumer, as its economic indicators were expected to show strong growth later this week.
Milder weather in the northern hemisphere, good supply and a fragile demand picture were all influencing prices, said Christopher Bellew of brokerage Bache Financial.
However, a key determinant of oil prices is demand from China and the fourth quarter economic data due out on Thursday will be an important factor, he said.
U.S. crude fell 11 cents, or 0.2 percent, to $77.89 a barrel by 1218 GMT. The New York Mercantile Exchange will combine prices for Monday and Tuesday into a single trading session because of the Martin Luther King Day holiday.
Brent dropped by 57 cents to $76.53 a barrel.
New York heating oil futures were slipping by a sharper 1 percent.
Heating oil is leading the market lower, Olivier Jakob with Petromatrix said. The weather is still mild in the States.
Private forecaster DTN Meorologix expected milder weather than normal for up to next 10 days in many areas in the United States, including the northeast, the world's largest heating oil market, after weeks of freezing weather since late December.
In Europe's largest heating market Germany, heating oil demand fell about 37 percent in December from a year earlier.
The market focus will shift to the Chinese economic data, including inflation, producer prices and retails sales, due out on Thursday.
China's industrial output probably jumped by 20 percent in the year to December from November's figure of 19.2 percent, a Reuters survey showed. That would be the fastest pace since February 2006.
Higher industrial output can push up oil demand from the country.
China's crude oil imports will probably rise 15 percent this year from 2009 as the country launches the second phase of its state petroleum reserve, according to China Oil, Gas & Petrochemicals, a report published by the state-run Xinhua news agency.
(Additional reporting by Alejandro Barbajosa in Singapore; Editing by Keiron Henderson)