Both gas oil and heating oil futures under performed crude on Monday
Oil fell on Monday ahead of a January futures contract expiry and due to a stronger dollar, after failing to capitalise on support from freezing temperatures in the US and Europe and a pipeline attack in Nigeria.
US crude for January delivery fell 60 cents to $87.4 a barrel by 1531 GMT erasing previous gains of as much as 70 cents. The January contract expires at the end of trading on Monday. ICE Brent for February fell 45 cents to $91.2.
James Zhang from Standard Bank said: "We expect the oil market to continue with its sideways drift towards year-end, albeit with some weakness likely to emerge in January."
He said: "We continue to view the European debt crisis with caution, while a potential policy response to rising inflation in China could also trigger a negative reaction."
US stock indexes turned negative while the US dollar index rose 0.35 percent versus other currencies and the euro hit a two-week low as concerns over the euro zone debt crisis persisted.
Olivier Jakob from Petromatrix said: "The global risks for the holidays are not small. The Koreans keep on provoking each other, there is still a risk of further tightening measures from China and Europe remains full of surprise with its peripheries and their bond yields."
The oil price fell despite a number of supporting factors, including freezing temperatures in Europe and the US.
The US Northeast, the world's top heating oil market, was expected to be colder than usual from December 24 to 28, according to weather data released on Friday.
In Europe, Arctic conditions were expected to continue in the north this week, potentially prolonging travelling disruptions.
Gas demand across Britain was expected to hit a record on Monday, causing National Grid to issue its first gas balancing alert this winter.
Jakob said: "Weather is cold in the Atlantic Basin and particularly in Europe. However pricing snowmaggedon episodes for oil demand is always a bit tricky as it also translates into lower demand for traveling fuels - jet, diesel, gasoline."
US heating oil demand is forecast at 4.6 percent above normal for the week ending December 25. It was 19.6 percent above normal last week, said the National Weather Service.
However, both gas oil and heating oil futures underperformed crude on Monday.
Analysts at Credit Agricole noted that heating oil burning has rose sharply in Germany with the latest data indicating that German consumer stocks have fallen to 61 percent of capacity in November, a relatively sharp drop by historical standards.
Analysts at Barclays Capital said in a note: "Cold weather and growing violence in Nigeria provide an additional layer of support."
US energy firm Chevron said on Monday it had suspended production from an oil pipeline in Nigeria's Delta state although Shell said it has ended a one month force majeure in Nigeria.
A monthly Reuters oil price poll showed on Monday a jump in estimates for 2011, when analysts expect oil to average $86, almost $3 up from last month's poll.