Oil prices are continuing to weaken as demand slows
Oil prices have further extended their losses on growing signs of weakening demand from consumers amid the global economic slowdown.
Weak US new home sales figures put further downward pressure on prices after Monday's fall on Wall Street and decline in Japanese exports.
US light, sweet crude slipped 93 cents to $38.98 a barrel, having already fallen 6% on Monday.
Brent crude oil also fell, by $1.09, to $40.36 a barrel.
"The bears appear to be in control, aided by weak equity markets as the global economic slump offers a depressive ring to the festive period," said Rob Laughlin, senior oil analyst at MF Global in London.
Meanwhile, China cut its interest rates on Monday for the fifth time in four months amid mounting anxiety about spreading job losses and worker protests.
Surging demand from China and other emerging nations had sent oil prices to record highs of $147 a barrel in July, before the economic crisis began to slow demand.
Now, however, even in China oil demand is falling, shrinking for the first time in three years in November.
The trend at the moment is still south
Justin Wilks, Global Commodities
In a bid to support oil prices, the producers' cartel, Opec, has said it would reduce production by about 5% of world supplies to counter the plunge in demand.
Last week Opec agreed to cut 2.2 million barrels a day of production, and the group has indicated it was ready to reduce supply further if needed.
However, oil traders have said they are most concerned for now with seeing evidence that Opec countries are implementing the cuts they have already agreed.
"The trend at the moment is still south," said Justin Wilks, of the fund managers Global Commodities.
"Any amount of production cuts will take a little time to come through, but just as with base metals it's all tied to economics at the moment," he said.
Later on Tuesday traders will be looking for confirmation the US economy contracted by 0.5% in the third quarter, in line with preliminary figures.
On Wednesday, weekly US oil inventory figures are expected to show that crude stocks rose by 300,000 barrels in the week to 19 December.
Meanwhile, energy ministers from gas exporting countries are meeting in Moscow amid suggestions that they want to set up an organisation similar to Opec.
The countries involved include Russia, Algeria, Iran, Libya, Qatar and Venezuela. Russia has said the main idea of the organisation is to exchange views.