Saudi Arabia suggested OPEC will not cut output later today.
Light, sweet crude for October delivery dropped $1.92 to $104.42 in electronic trading on the New York Mercantile Exchange by afternoon in Dubai. The contract inched up 11 cents to settle at $106.34 following a volatile session Monday.
Investors were betting Hurricane Ike won't cause significant damage to oil operations in the Gulf region after the storm weakened Monday from a Category 3 storm to a Category 1, with winds around 80 mph (130 kph).
Ike roared ashore in eastern Cuba on Sunday and was expected to hit Havana on Tuesday. However, current forecasts left the storm on track to miss key oil and gas installations in the Gulf of Mexico.
"If the market thought there was a good chance of it causing damage (to oil sites), oil would be at $108 or $110," said Jonathan Kornafel, Asia director for brokerage Hudson Capital Energy in Singapore.
In Vienna, Austria, oil ministers from the Organization of Petroleum Exporting Countries were preparing to meet later in the day to decide whether to hold production levels steady despite crude's steep decline in recent months. Prices have plunged nearly 30 percent since surging to a record $147.27 a barrel on July 11.
Iran and other hawkish members have been pushing the 13-member body to trim output in an effort to lift prices - or at least halt the decline. But Saudi Arabia, the cartel's largest member, and a number of other countries have been less vocal about possible cutbacks.
Early morning comments by Saudi Oil Minister Ali Naimi suggested the kingdom, which accounts for about a third of all OPEC output, prefers not to tighten the spigots for now.
"The market is fairly well balanced," Naimi told reporters after arriving in Vienna in the dawn hours of Tuesday. "I think things are in balance, in a healthy position."
Kuwait's oil minister, Mohammed Abdullah Al-Aleem, meanwhile said there is no need for OPEC to cut production.
Oil analyst and trader Stephen Schork, speaking by phone from Vienna, said he expects ministers will decide to keep production constant for now.
Part of the reason, he said, would be to avoid sparking a politically motivated firestorm in the U.S., by far the world's largest oil consumer. U.S. gasoline prices have come down from their summer highs above $4 a gallon, but still remain nearly a dollar higher than they were a year ago.
"I don't think the Saudis or OPEC in general want to project themselves into the U.S. presidential election, which is what would happen if you saw a production cutback," he said.
In other Nymex trading, heating oil futures about 4 cents to $2.973 a gallon, while gasoline prices dropped 5.93 cents to $2.691 a gallon. Natural gas for October delivery fell 23 cents to $7.297 per 1,000 cubic feet.
In London, October Brent crude fell $1.29 to $102.15 a barrel on the ICE Futures exchange.