Investing.com - Oil prices fell sharply after the long Christmas weekend on Monday, as last week's rally came to a halt.
Heading into the final week of the year, trading volumes are expected to remain light as many traders already closed books, reducing liquidity in the market which could result in exaggerated moves.
Crude oil for delivery in February on the New York Mercantile Exchange slumped $1.15, or 3.02%, to trade at $36.95 a barrel during U.S. morning hours.
U.S. oil futures surged $3.52, or 9.7%, last week, the biggest weekly gain since early October, thanks to falling inventories, reduced drilling and the lifting of a ban on most U.S. crude exports.
Despite last week's strong gains, Nymex oil futures are still down nearly 30% in 2015 amid worries over ample domestic supplies. Prices fell to $34.29 earlier this month, the lowest since February 2009.
Elsewhere, on the ICE Futures Exchange in London, Brent oil for February delivery dropped $1.03, or 2.73%, to trade at $36.86 a barrel. London-traded Brent futures increased $1.34, or 2.74%, last week, snapping a three-week losing streak.
Brent oil prices are still on track to post an annual decline of 35% this year, as oversupply concerns dominated market sentiment for most of the year. Prices slumped to $35.98 on December 22, a level not seen since July 2004.
Oil futures have fallen sharply this month after the Organization of the Petroleum Exporting Countries failed to agree on output targets to reduce a glut of oversupply on global energy markets.
Global crude production is outpacing demand following a boom in U.S. shale oil and after a decision by OPEC last year not to cut production in order to defend market share.
Meanwhile, Brent's discount to the West Texas Intermediate crude contract stood at 9 cents, compared to a discount of 21 cents by close of trade on Thursday.
U.S. crude has been firmer relative to Brent recently, on signs that the U.S. oil market is likely to grow tighter following Congress' decision to lift a 40-year old ban on domestic oil exports, while a global glut gets worse in 2016 due to soaring production in Saudi Arabia and Russia.
Oversupply issue will be exacerbated further once Iran returns to the global oil market early next year after western-imposed sanctions are lifted. Analysts say the country could quickly ramp up production by around 500,000 barrels, adding to the glut of oil that has sent prices tumbling.