NEW YORK (Dow Jones/AP) – U.S. heating oil futures plunged Monday amid forecasts of moderating U.S. temperatures, pulling oil prices down by nearly $3 to their lowest level in two weeks.

The drop in heating oil futures on the New York Mercantile Exchange was the steepest in at least three years. The decline was driven by solid growth in commercial inventories of heating oil over the past month, and the expectation of continued moderate cold and heavy output from U.S. refiners.

January heating oil tumbled 11.53 cents to close at $1.2108 a gallon.

Benchmark light, sweet crude oil futures for February delivery settled down 2.86 cents at $41.32 a barrel on the Nymex, while January gasoline was off 8.8 cents to $1.0412 a gallon.

January natural gas fell 50.8 cents to $6.16 per million British thermal units.

While the market was thinned out by the holidays, contributing to the volatility, observers still saw the move as a further indication of building bearishness in the absence of any stress on supply.

“The air is coming out of the balloon,” said Ed Silliere, an analyst at Energy Merchant in New York.

“The big funds are selling aggressively because of a lack of demand for heating oil and rising supplies.”

The sell-off in heating oil futures deepened after several forecasters, including the National Weather Service, called for above-normal temperatures over the next two weeks in the eastern half of the United States, the region most dependent on heating oil. The expected drop in demand combined with record output of distillate fuels by refiners led many analysts to project continued growth in inventories.

Oil prices have been on a rollercoaster in recent weeks amid changing Northeast temperatures. A cold snap in mid-December helped push heating oil and crude prices sharply higher.

Meanwhile, gold futures settled near a three-week high Monday on the Nymex, after receiving a boost from a weaker dollar in thin holiday volume.

The most active contract, February, settled $3.30 higher at $446.20 per ounce, near a three-week high of $446.70 reached earlier in the session. The contract pushed higher at the open after the dollar posted lows against the euro in overnight trade.

Jim Steel of Refco Inc. in New York, said the dollar was the principle factor in the market Monday, but he added that massive tsunamis in Asia and Africa sparked interest in gold as a “safe haven” investment.

March silver breached $7 an ounce to reach its highest level in 2.5 weeks at $7.090 per ounce. The contract settled 9 cents higher at $7.005 per ounce.

Among the other commodities, cotton futures settled settled 0.02 cent higher at 42.92 cents a pound. The contract opened lower on speculator and fund selling but trade buying helped to absorb the pressure.

Cocoa futures settled higher at the Nybot as speculators bought futures amid light volume and a lower U.S. dollar. March settled $12 higher at $1,564 a metric ton.

March sugar settled 0.13 cent higher at 8.99 cents a pound.

March Arabica coffee settled down 0.40 cent at $1.0470 a pound.