NEW YORK (CNN/Money) - Oil prices tumbled more than $1 a barrel Monday as forecasts for more mild weather in the Northeast led traders to believe demand for heating oil would fall sharply in coming weeks.
U.S. light crude for February delivery closed down $1.32 at $42.13 a barrel on the New York Mercantile Exchange, a drop of 3.3 percent. The contract fell more than $2 to trade as low as $41.25 earlier in the session
London Brent did not trade Monday because the International Petroleum Exchange was shut for a bank holiday.
Heating oil for February delivery closed down 6.16 cents at $1.191 a gallon. Heating oil sank as much as 7.76 cents, or 6.2 percent, to $1.1750 a gallon earlier in the session, the lowest since prices for the nearby contract hit $1.1692 in early September.
"The drop in prices correlates with unusually high temperatures in the Northeast," said Fadel Gheit, an oil analyst with Oppenheimer.
"Because the temperatures are rising as high as 60 degrees in (some parts of the region), the expectation is that weekly inventory data will show an increase to reflect less consumption," said Gheit.
Private forecaster Meteorlogix predicted that unseasonably warm temperatures in the Northeast, the world's biggest heating oil market, will continue near to above normal over the next week.
Total home heating oil needs were forecast to be 29 percent below normal in the week ending Jan. 8 after being nearly 16 percent below normal in the week ended Jan. 1, Reuters said, quoting a National Weather Service weekly report.
According to Reuters data, crude oil prices are now down $14 from the all-time peak of $55.67 a barrel scaled last October.
Gheit said prices are still well above what they should be trading at, and have plenty of room to dip.
"Barring any serious supply disruption, there is plenty of oil and prices could drop if the weather stays warm," said Gheit. "But we have tremendous speculation in the markets driving prices, so there is no way to guarantee they will continue to fall."
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