Oil broke through a crucial technical support level of $55 on Tuesday, plunging $2 a barrel -- a loss of 11 percent since the start of the year, Reuters reports.
An unusually warm U.S. winter and concern that funds were losing interest were pressuring prices, sinking U.S. crude to its lowest since June 2005.
U.S. crude fell $2.03 to a new low of $54.06 a barrel by 1253 GMT -- down $6.99 since the last day of trade in 2006.
Brent crude lost $1.77 to $53.83.
The steep price drop has rung alarm bells in OPEC producers and the group's president, the United Arab Emirates, is discussing further action with member states.
"New York is too warm, people are enjoying the sunshine in Central Park," said Keith Sano, manager with the commodities business unit at Sumitomo Corp.
U.S. heating oil demand will run about a third below normal this week, the National Weather Service said on Monday, extending an extraordinary streak of mild winter weather.
The mild weather undermined earlier gains on Monday after Russian crude supplies were halted through the Druzhba pipeline, which meets about a fifth of Germany's demand.
Russia has accused Belarus of stealing oil from the line. The disruption comes one year after Russia's natural gas dispute with Ukraine hit supplies to Europe, and is likely to revive debate about Moscow's reliability as an energy supplier.
The International Energy Agency on Tuesday said the European oil markets could cope with the halt. Russian pipeline monopoly Transneft has not said how long the cut might last.
(Reuters, 09/01/2007)