Oil plunges 8 percent as traders view previous gains excessive

Fuel consumption in the U.S., the world’s biggest economy, fell 3.7 percent in the four weeks ended Dec. 26 from a year earlier, according to the Department of Energy. Oil jumped 14 percent on Dec. 31 after a report showed U.S. fuel stockpiles climbed less than expected and the conflict between Israel and Hamas raised concerns Middle East supplies may be disrupted.

Crude oil for February delivery fell as much as $3.52, or 7.9 percent, to $41.08 a barrel in after-hours electronic trading on the New York Mercantile Exchange.

The February contract rose $5.57 to $44.60 a barrel on Dec. 31, the highest since Dec. 12.

Oil prices fell more than $100 off their $147 a barrel July peak in 2008, due to deepening economic recession.

Faced with slumping demand and prices, producer grouping OPEC last month agreed to lower output by 2.2 million barrels per day (bpd), its deepest reduction ever, taking its total cuts since September to the equivalent of 5 percent of world supply.

Evidence is mounting that OPEC is complying with its goal to reduce production, led by top exporter Saudi Arabia.

GEOPOLITICS SUPPORT
Oil markets have also watched anxiously the dispute between the world's biggest non-OPEC oil exporter, Russia, and its neighbors over natural gas supplies.

Russia shut off the gas to neighbor Ukraine on Thursday, after a contract dispute but increased supplies to other European states to try to reassure customers.

The row could stir new doubts about Moscow's reliability as an energy supplier and fuel suspicions in the West -- already running high since Russia's war with Georgia last August -- that the Kremlin bullies its pro-Western neighbors. However, similar past disputes rarely had an impact on oil flows.

Violence in Gaza that stoked oil's rise this week continued into a sixth day on Thursday, when Israel killed a senior Hamas leader in its first deadly blow against the top ranks of the Islamist group in an offensive that has killed more than 400 Palestinians.