New York's main contract, light sweet crude for delivery in July, fell 73 cents to 53.76 dollars per barrel in closing deals.

In London, the price of Brent North Sea crude oil for delivery in July lost 54 cents to close at 53.76 dollars per barrel.

A key to the decline were comments fro the president of the Organization of Petroleum Exporting Countries who said he would propose a 500,000 barrel per day hike in the cartel's output ceiling at a meeting next week if prices remain at high levels.

"If prices continue at this high level, I will, as Opec president, propose to increase this (production) ceiling by 500,000 barrels per day at the Opec ministers' meeting in Vienna" on June 15, Sheikh Ahmed Fahd al-Sabah, who is also Kuwait's energy minister, told reporters.

However, he said the proposed rise would not add to the 11-member cartel's current actual production because "the real (over) production is already in the market."

"Our real production now is over 30 million barrels per day for the Opec-11... We are already over the ceiling."

John Kilduff, analyst at Fimat USA, said another factor was the resumption of production at the Hovensa refinery in the US Virgin Islands, putting another 100,000 barrels a day into supplies.

"They're obviously trying to put every extra barrel of oil they can on the market," he said.

Fears of a shortage of distillate products -- used for heating oil -- during the next northern hemisphere winter pushed prices on Monday to highs of 55.55 dollars in New York and 54.62 dollars in London.

But world oil prices fell back as traders expected the US Department of Energy to unveil increases in crude stocks in Wednesday's weekly snapshot of inventories -- forecast to show a jump in distillates.

"Oil prices are lower as the rise on distillates now seems overdone," Sucden broker Robert Montefusco said.

The market consensus forecast was for a rise of 1.3 million barrels of distillates when the US government publishes its latest weekly inventories report on Wednesday.