Crude oil is now trading below $51 a barrel, a level not seen since May 2005. The commodity has fallen more than 16 percent this year in a sell-off triggered by a historically warm winter in the Northern United States and sustained by large funds taking short positions in the market, or bets that prices will fall.
Some market participants believe that another production cut by the Organization of Petroleum Exporting Countries could halt the price drop — but until that happens, there's little to stop prices from sliding further.
"It doesn't feel like it's run it's course yet. It will probably fall below $50 a barrel — then the Saudis may be more amenable to an emergency meeting," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.
Benchmark light sweet crude plummeted $2.10 to $50.89 in afternoon trading on the New York Mercantile Exchange after reaching as low as $50.53.
Heating oil prices are down about 7 percent on the year, compared to the 16 percent drop this year in crude.
Gasoline is much more widely used than heating oil, so the spring driving season could boost demand, and in turn prices. "A couple months down the road, the focus will shift to the gasoline market. A tight supply situation has time to develop," Ritterbusch said.
U.S. gasoline prices at the pump have fallen 4.5 percent since the beginning of the year to an average $2.229 a gallon Tuesday, according to AAA. U.S. drivers should see further savings if crude prices stay low, but only about half of the retail cost of gasoline is determined by the price of crude oil, the U.S. Department of Energy says. The rest factors in distribution and marketing, refining costs and profits, and taxes.
Tom Kloza, head of the Oil Price Information Service, told CBS News correspondent Anthony Mason that the drop in prices has a lot to do with the weather. First, the hurricane season didn't really hit. Now, winter is barely getting started.
"And it's not just warm in New York and Boston. It's warm in Vienna and Moscow too," he said. "That's taking the whole mothership down, including gasoline."
Ten cities now have an average gas price currently below $2, according to gasbuddy.com. The cheapest on the list is Toledo, Ohio, where an average gallon of gas gas costs $1.87 a gallon, Mason reports.
The losses erased the gains made Friday, when crude rose to settle at $52.99 after four straight days of drops. The Nymex was closed Monday for the Martin Luther King Jr. holiday.
Nymex heating oil slid nearly 3 cents to $1.4750 per gallon; gasoline fell more than 6 cents to $1.3719; and natural gas futures dropped more than 8 cents to $6.519 per 1,000 cubic feet.
February Brent crude on London's ICE Futures exchange fell 82 cents to $52.30 on Tuesday on London's ICE futures exchange.
Energy prices resumed falling after comments by Saudi Oil Minister Ali Naimi that added to growing sentiment that OPEC would not call a special meeting any time soon to discuss further production cutbacks to stem this year's slide in prices.
"There is no need now (for further cuts) on the basis of what market conditions are," Dow Jones Newswires quoted Naimi as saying after he arrived in New Delhi for an international conference organized by India's Oil Ministry.
Venezuelan oil minister Rafael Ramirez on Monday called for an extraordinary OPEC meeting to push for another production cut. He said some other OPEC countries back Venezuela's proposal but did not specify which ones. But at OPEC headquarters in Vienna, an official who asked not to be identified because she was not authorized to comment, said such a meeting was unlikely — at least for this week.
Nigerian Oil Minister Edmund Daukoru told Dow Jones Newswires in India on Tuesday that OPEC members should wait until February before deciding on further cuts in their crude oil output.
OPEC in recent months has committed to a total cut in output of 1.7 million barrels per day, including a 500,000 barrel-a-day reduction set to begin Feb. 1. Compliance is believed to be halfhearted. According to Dow Jones Newswires, independent surveys suggest OPEC has cut output by little more than half of its pledged levels. Production remains near 27 million barrels a day or about 700,000 barrels a day above OPEC's target.
"It is not that OPEC is not capable of 100 percent compliance, but trying to support prices at such high levels invites noncompliance. There is no urgency to cut output," wrote Peter Beutel of Cameron Hanover in a research note.
This is because prices are still high in historical terms, so OPEC members continue to pull in big profits. The last time crude oil traded at $40 a barrel was in 2004, but Beutel noted that for roughly 94 percent of OPEC's history, its daily sales have been at prices below $40 a barrel.
Last week, the National Oceanic and Atmospheric Administration said it expects warmer-than-normal weather in the Northern United States to continue through March, while the U.S. government said supplies of gasoline, heating oil and diesel fuel remained abundant.
Many traders point out that heating oil is a relatively small portion of the energy market, though, and that crude prices have fallen further than heating oil prices — indicating that funds liquidating their long positions in crude have played a big role in the price drop.
The energy market has deflated despite several factors that gave prices a boost in past years, such as rising tensions in the Middle East, growing global energy demand and escalating violence in Nigeria, Africa's largest oil exporter and the fifth-largest supplier of crude to the United States.