Oil fell over 3 percent to below $45 a barrel on Monday as traders questioned whether OPEC's decision to enforce better compliance with previous curbs rather than make new production cuts was enough to offset eroding global demand.
While top producer Saudi Arabia had signaled a week ago that it wanted stricter adherence to the cartel's previous 4.2 million barrel per day (bpd) cuts rather than additional formal restraints, other members had campaigned for explicit action now to avert a further rise in already swollen oil inventories.
At its meeting on Sunday in Vienna, OPEC agreed to enforce existing curbs more strictly and said it would meet again at the end of May to review progress, surprising some traders who had expected the group's more hawkish members to prevail.
U.S. light crude for April delivery fell $1.73 to $44.52 a barrel by 12:40 a.m. EDT, after having earlier dropped as low as $43.85. London Brent crude fell $1.52 to $43.41.
Its a very reasonable decision for OPEC to take at this point, but that means they shouldn't expect to see oil prices at $50 for the foreseeable future, said Jonathan Kornafel, Asia Director of U.S.-based Hudson Capital Energy in Singapore.
OPEC's adherence with previous cuts has been estimated at about 80 percent and full compliance would take away more than 800,000 barrels per day.
The cartel's Angolan President said in an interview on Sunday that the supply curbs had brought some stability to oil markets, although prices remained too low to encourage investment in new supplies.
U.S. Energy Secretary Steven Chu said he was pleased with the outcome.
The market will now turn its focus on U.S. economic data. We saw some weak data last week which may again pose some downside risks for oil prices, said Mark Pervan, a senior commodities analyst at the Australia & New Zealand Bank.
U.S. ECONOMY DATA
A heavy calendar of economic reports is on tap for the week and negative surprises from any of the releases -- such as Monday's industrial production data or Tuesday's housing start figures -- could drag oil prices lower still, analysts said.
Oil prices have tumbled about $100 from record highs over $147 a barrel in July 2008 as the global economic crisis weighs on energy demand, but it has recovered from levels below $35 a month ago.
An OPEC report released Friday showed world oil demand contracting faster than expected, and the International Energy Agency lowered its oil demand forecast by more than a million barrels per day for 2009.
Still, analysts said gains in the equities market could offer some support for oil prices as traders might adopt a more favorable view of future oil demand on the heels of better economic guidance.
Asian shares rallied to a one-month high on Monday amid easing fears over the health of U.S. banks and after G20 finance ministers promised to use all available tools to fight the global recession.
Crude oil speculators on the New York Mercantile Exchange increased net short positions in the week to March 10, data from the U.S. Commodity Futures Trading Commission released on Friday showed.
(Additional reporting by Chua Baizhen in Singapore; Editing by Sanjeev Miglani)