A newconcluding that Iran halted its nuclear weapons development program in 2003 also weighed on prices.
Light, sweet crude for January delivery fell $1.10 to $88.21 a barrel in electronic trading on the New York Mercantile Exchange. It traded as high as $89.98 and as low as $87.34 earlier in the session.
In London, January Brent crude futures dropped 38 cents to $89.42 a barrel on the ICE Futures exchange.
At the pump, meanwhile, gas prices fell less than a cent to a national average of $3.052 a gallon, according to AAA and the Oil Price Information Service. Analysts expect gas prices to continue sliding in the weeks to come, as long as oil prices continue to decline.
On Tuesday, crude prices rose and fell throughout the session as differing statements were reported from delegates of the Organization of Petroleum Exporting Countries arriving in Abu Dhabi, United Arab Emirates, for Wednesday's meeting.
"The focus will remain on OPEC in coming days, but the (U.S. intelligence) report on Iran ... should provide for a redefinition of the geopolitical premium in coming months," Olivier Jakob of Petromatrix in Switzerland said in a report. "The fear of a unilateral strike on Iran has been an important component of the risk premium in crude oil."
President Bush said Tuesday the international community should continue to pressure Iran on its nuclear programs, and said Tehran remains dangerous despite the new intelligence report.
"I view this report as a warning signal that they had the program, they halted the program," Bush said. "The reason why it's a warning signal is they could restart it."
Oil prices have dropped about $10 in one week on the belief that OPEC has all but decided to boost production. But the price drop itself has raised questions about whether oil ministers will follow through.
"I think OPEC is secretly pleased that prices are under pressure," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. If prices rebound past $90 a barrel, the ministers will be compelled at Wednesday's meeting to legitimize recent overproduction, he said.
Recent OPEC comments have been divided, with ministers from Venezuela and Qatar suggesting there's no need to boost supplies, while ministers from Indonesia, Nigeria and Kuwait say they're still open to increases.
Saudi Oil Minister Ali al-Naimi, possibly the most influential member of the cartel, has struck a neutral tone, telling reporters this weekend that "the field is wide open."
Traders are also waiting for the U.S. Department of Energy's weekly petroleum inventory report due Wednesday. The report is closely watched in the oil markets as a guidepost for demand.
U.S. crude stockpiles are likely to fall by 800,000 barrels and gasoline stocks to grow by 900,000 barrels, according to an average estimate of analysts surveyed by Dow Jones Newswires.
Refinery use is expected to rise 0.2 percentage point to 89.6 percent of capacity, according to the survey.
Distillate stocks, which include heating oil and diesel fuel, are expected to drop by 300,000 barrels, according to the survey.
Nymex heating oil futures on Tuesday fell 0.08 cent to $2.5103 a gallon, while gasoline prices dropped 0.01 cent to $2.2500 a gallon.
Natural gas futures slid 7.4 cents to $7.140 per 1,000 cubic feet.