Oil prices dropped further below $40 on Monday as increased supplies in the United States and Opec's pledge to bump up output eased immediate concerns of a supply crunch in world markets.
Oil dealers said the downside potential for prices would be limited by fears of security risks in the oil-rich Middle East and worries US gasoline stocks would be drained as the summer driving season picks up.
US light crude for July fell 14 cents to $38.35 per barrel on Monday, around 10 percent below a 21-year high of $42.45 traded last week. London Brent crude was down 14 cents at $35.53 a barrel.
Prices dropped last week after the Organisation of the Petroleum Exporting Countries (Opec) pledged to raise official output by two million barrels per day (bpd) from July and a further 500,000 bpd from August.
Saudi Arabia, the world's biggest exporter, and fellow Opec member United Arab Emirates said they would pump an extra one million bpd between them, regardless of Opec policy.
A Saudi oil official said on Monday that the kingdom is supplying markets with 9.1 million barrels of oil a day and stands ready to pump still more crude in July if customers and markets ask for it
"Saudi Arabia looks determined to soften oil prices with more oil production, said Deutsche Bank in a report. "Expect a summer inventory build, as Saudi pumps up over 9 million barrels per day".
The recent fall in prices will be welcome news for leaders of the world's leading industrialised nations, known as the G8, who meet from Tuesday in the United States.
US security adviser Condoleezza Rice said on Monday that the G8 hopes "hope they [Opec] carry through fully" with last week's decision to lift supply.
G8 nations are concerned that high crude oil prices could restrain a growing world economy, Rice said.
As healthy world economic growth fuels higher than expected oil demand, some analysts fear oil supplies will remain tight for some months to come, leaving importers exposed to sudden supply problems.
The killing of an Irish cameraman and the wounding of his British colleague by gunmen in Saudi Arabia on Sunday once again raised fears over security in the kingdom.
The attack came a week after al Qaeda militants killed 22 people, 19 of them foreigners, in the eastern oil city of Khobar. Oil hit a 21-year high following the attack.
And Nigeria's main oil unions said on Monday they had fully mobilised for a planned general strike beginning on Wednesday in protest of recent hikes in fuel prices in the world's seventh biggest crude oil exporter.
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