Updated from 2:04 p.m. EDT

Oil prices tanked Tuesday, with the benchmark U.S. crude moving further away from its all time-high.

Oil futures for September delivery closed down $1, or 2.4%, at $40.44 a barrel, while gasoline prices lost 4.5 cents, or 3.5, to $1.246 a gallon.

Traders Tuesday turned optimistic about the outlook for short-term supplies, as they awaited two key weekly reports on energy inventories Wednesday.

Recent moves to steady the market have had a limited impact.

The Organization of Petroleum Exporting Countries last week said it had decided on an increase in its production ceiling by a half-million barrels a day in August and also cancelled a July 21 meeting on the issue.

The measure was part of a broader agreement reached at OPEC's June 3 meeting, when it decided to increase official production by 2 million barrels a day in July. Prices touched a record high of $42.33 a barrel right before that meeting.

The August increase will put OPEC's official production ceiling at 26 million barrels a day, although its members routinely produce more than their individual quotas. A recent International Energy Agency report said the cartel produced more than 28 million barrels a day in July, when its ceiling was just 23.5 million barrels a day.

At one point recently, oil prices had fallen 15% from their record high, closing below $36 a barrel.

Since then, prices have bounced back on worries about production levels in such major oil producing countries as Iraq, Norway, Nigeria and Russia, as well as worries about terror attacks on the U.S. ahead of the presidential election.

During May, traders relentlessly bid up prices on short-term supply concerns triggered by strong global demand and terror attacks on oil industry personnel and facilities in the Persian Gulf region ahead of the peak summer driving season in the U.S. and Europe.