Oil fell below $78 a barrel on Tuesday, extending its recent losing streak, as producer group OPEC said supply was ample enough to meet winter demand and trimmed estimated demand for its oil.
U.S. crude fell 72 cents to $77.28 a barrel by 8:48 a.m. EST. 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 $1.16 to $75.94 a barrel.
The Organization of Petroleum Exporting Countries, the source of more than a third of world's oil, said in its monthly report that demand for its oil would average 28.59 million barrels per day (bpd) in 2010, 20,000 bpd less than expected last month.
Inventories remain high enough to cope with any sudden jump in winter demand, the report also said. It is written by economists based at OPEC's Vienna headquarters.
OPEC is still concerned about demand, said Andy Sommer, energy market analyst with EGL in Switzerland, adding the group had the lowest demand recovery estimate in three key organizations including itself, the International Energy Agency and the U.S. Department of Energy.
Sommer also said the bankruptcy protection filing by Japan Airlines Corp <9205.T> had some impact on oil prices.
We see this as a pure fundamental to show how weak jet fuel demand is, he said.
The market focus will shift to Chinese economic data, including inflation, producer prices and retails sales, due out on Thursday.
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, Christopher Bellew of brokerage Bache Financial said.
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 and Veronica Brown)