Light sweet crude for delivery in February delivery fell 93 cents to $US38.98 a barrel on the New York Mercantile Exchange (NYMEX).
The price of Brent North Sea crude for February ended down $US1.09 to $US40.36 on London's InterContinental Exchange (ICE) after slipping below the $US40 mark.
Both contracts had fallen by about $2.50 dollars on Monday as the market was also plagued by fears of weakening world demand for energy.
"Even though crude oil prices managed to struggle above 40 dollars in overnight trading, they did not stay there for long," said John Kilduff of MF Global.
"It is hard to construct a scenario that produces much higher prices with volume limited to year-end activity, and data expected to show a worsening economic picture,'' he said, citing depressing economic news in the United States, China and Britain as well as capital flight in Russia.
US government data confirmed the American economy -- the world's biggest crude oil consumer -- contracted by 0.5 per cent in the third quarter of the year.
The abrupt contraction of gross domestic product (GDP) in the world's largest economy was seen as marking the start of a steep downturn for the United States after GDP growth of 2.8 percent in the second quarter.
New York crude for January delivery ended Friday after tumbling close to a 5-year low of $US32.40 per barrel -- which was last seen on February 9, 2004 -- as investors raced to sell before the contract's expiry.
Crude futures have collapsed by as much as 78 per cent since striking record highs above $US147per barrel in July, as a sharp global economic slowdown saps the world's demand for energy.
"The daily litany of economic woe contained in the performance of financial markets and government and private data show clearly a global economy in acute distress,'' Mr Kilduff said.
The market will be looking very closely whether OPEC members were complying with their proposed production cuts in view of the cartel's previous "questionable performance,'' he said.
OPEC, which produces 40per cent of the world's crude, agreed last week to cut output by 2.2 million barrels per day in a bid to shore up prices.
Analysts noted that the recent rise in oil stocks in the United States caused New York prices to fall below their Brent counterpart in London, which is unusual.
Oil reserves in Cushing, Oklahoma, where light, sweet crude oil is stored, are at maximum capacity.
Traders be watching Wednesday's key weekly US energy report published by the US government's Department of Energy.
"If low temperatures in the US continue, it could help reduce inventories in January,'' said Thierry Lefrancois at Natixis.
"OPEC quota should also begin to have an impact on stock draw. The question remains if the dollar weakness could finally boost oil prices,'' said Mr Lefrancois, adding that winter season is traditionally the best period for robust oil prices.
After a rollercoaster year, oil prices have now tumbled by about 57 per cent since the start of 2008, when they traded at about $US95 per barrel.
