In London, Brent prices were down $1.50 to $50.48 a barrel on the ICE Futures exchange.
Further declines are expected as analysts say the recent rally in crude has not been supported by any real changes in market fundamentals, with supply building up while demand from industrial consumers is falling faster than expected.
"We are seeing some profit-taking because oil supply fundamentals really did not support the price rally to the mid-50s a barrel," said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore.
Crude prices set new year highs last week, rising steadily from $35 in February to close above $54 a barrel last Thursday, partly lifted by the recent rally in global stock markets.
"Fundamentals should still favor a downside breakout while an upside breakout will need to be triggered by strong exogenous markets" like equities and the U.S. dollar, said Olivier Jakob of Petromatrix in Switzerland.
Asian and European markets fell sharply Monday as downbeat comments from major U.S. banks and mounting woes at American auto giants undermined recent optimism about economic recovery.
Shum said there is growing skepticism about the level that prices have climbed to and foresees them sliding below $50 a barrel again.
The U.S. government last week said crude storage facilities were brimming with more oil than they've had in 16 years. Combined with strategic petroleum reserve, the nation now has 1.05 billion barrels of oil in storage - enough to fuel roughly 44 million cars for a year.
Crude is piling up as airlines, manufacturers, automakers and just about every other sector slow down and millions of workers lose their jobs. U.S. stores of natural gas also rose by 3 billion cubic feet to about 1.65 trillion cubic feet for the week ended March 20.
The Organization of Petroleum Exporting Countries has promised to slash production by 4.2 million barrels per day, but analysts are at odds about the level of compliance by OPEC members with the cuts.
JBC Energy in Vienna cited data from tanker-tracking agency Petrologistics showing that March crude oil production from 11 OPEC nations would total 25.9 million barrels a day, more than 1 million units higher than the group's implied output ceiling of 24.845 million barrels a day.
"This results in a compliance rate of only around 75 percent at the moment if these estimates prove to be correct," JBC Energy said. Petromatrix shared their view, stating that "OPEC compliance has been revised lower not higher."
Britain's KBC market services, however, was among several analysts who estimated that OPEC members were "making more progress towards implementing their output cuts."
Comments Monday by Qatar's oil minister seemed to indicate that OPEC was conceding that poor demand would keep oil prices down even if the cartel's output was tightened.
Abdullah bin Hamad al-Attiyah said he was "OK" with crude prices at around $50 a barrel for 2009 and was "trying to be more pragmatic" regarding the global crisis and its effects on oil prices.
A new study by Cambridge Energy Research Associates also said plummeting crude prices have discouraged enough exploration to cut future oil supplies in half.
The CERA report said that of the potential 14.5 million barrels per day in new production expected from 2009 to 2014, about 7.6 million barrels were "at risk."
In other Nymex trading, gasoline for April delivery fell 3.10 cents to $1.4569 a gallon while heating oil slipped 3.90 cents to $1.3938 a gallon. Natural gas for May delivery was down 4.9 cents to $3.688 per 1,000 cubic feet.
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Associated Press writer Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.
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