New York's main futures contract, light sweet crude for delivery in February dropped 1.73 dollars to 80.79 dollars.

The New York contract had hit a 15-month peak of 83.95 dollars a barrel on Monday before traders decided to bank profits.

London's Brent North Sea crude for February was down 1.67 dollars to 79.30 dollars.

The market reacted to expectations of easing heating fuel demand as forecasters predicted milder weather for the weeks ahead in the United States, the world's biggest energy consumer hit by a cold snap recently.

"Traders anticipated that the nasty cold had played a big part in pumping up the price of oil," said Phil Flynn, senior market analyst with FG Best.

"This weekend was the weekend that was supposed to be the beginning of the new ice age, so some traders might have been shocked that temperatures could actually go up," he said.

ODL Markets analyst Marius Paun said prices rallied on expectations of stronger heating oil demand "but the latest reports say that this may have been overdone."

"Temperatures in the United States, Asia and Europe are expected to rise, lessening the demand from consumers."

Another factor that dampened markets was overheating concerns in the Chinese economy.

Authorities in China sought Tuesday to rein in a surge of aggressive lending by banks that has raised fears of inflation and a looming asset bubble.

After issuing a series of recent calls for banks to moderate their lending activity, the central bank hiked the minimum amount of money that banks must keep in reserve for the first time in more than a year.

"Rising temperatures and Chinese monetary policy have combined to temper heating demand and the pace of lending by Chinese banks," said Mike Fitzpatrick, Vice President of MF Global.

"Market participants are preparing for another decline in distillate stockpiles, still above multi-year averages, the current deep freeze notwithstanding," he said.

While signs of economic recovery remain sketchy, he said it would be difficult to maintain oil prices near current levels.

"Prices at 80 dollars and above, will only be sustainable when unemployment starts shrinking, and GDP starts growing," Fitzpatrick said.

Kuwait's Oil Minister Sheikh Ahmad Abdullah al-Sabah on Tuesday said that at around 82 dollars, the price of crude oil was "fantastic."

Oil prices are "fantastic ... because of what is happening with the (cold) weather in Europe and as demand is picking up," he said.

The minister said Kuwait does not want any change to production quotas when the Organization of Petroleum Exporting Countries meets in March.

He also expected demand to pick up in the second quarter of 2010 as the global economy is likely to continue its recovery and as crude inventories decline.

Elsewhere on Tuesday, the market was following developments in OPEC member Nigeria, where gunmen kidnapped three Britons and a Colombian working for Anglo-Dutch oil giant Shell, while shooting dead their police escort.

It is the first major kidnapping in southern Nigeria for months, following a lull in the wake of a government amnesty which saw thousands of militants lay down their arms.

burs-pp/rl

del.icio.us	Digg	Reddit
YahooMyWeb	Google	Facebook

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News