Oil prices dropped on milder weather in the US and rising distillates supplies.

February crude futures fell $1.38 to $42.80 a barrel.

Forecasts issued late last week predict warmer weather in the US Northeast in the days to come after December 29, reports the National Weather Service.

``Weather forecasts have changed for the better and inventories are high,’’ said John Kilduff, senior vice president of energy risk management at Fimat USA Inc. in New York. ``The warm weather will reduce demand for heating oil.’’

Energy Department released on December 22 a report indicating a rise in supplies of crude oil and petroleum products in the week ended Dec. 17. Distillate supplies, including heating oil and fuel, rose 584,000 barrels to 119.9 million, a 4.7% rise in five weeks.

``There will be little action in the market in a week sandwiched by the holidays,’’ said Carl Larry, an associate director of energy futures at Barclays Capital Inc. in New York. ``A few up days, a few down days but either way the market will see both sides.’’

Prices are still 34% up since the beginning of the year.

OPEC has decided to cut production by 1 million barrels per day since the start of the year, in an effort to keep prices high.