Oil drops below $91 on recession fears

Oil slid below $91 on Wednesday to the lowest in over three weeks, ahead of a slate of oil industry data that could show more signs of possible weakening demand and as Opec repeated its pledge to lift output if needed.

US light crude for February delivery fell to a low of $90.85 and was down 91 cents at $90.99 per barrel by 8.49am GMT. It had tumbled by $2.30 on Tuesday on a surprise fall in US retail sales in December and a record quarterly loss at the largest US bank, Citigroup.

London Brent crude for February, which expires later on Wednesday, was down 85 cents to $90.13 a barrel, after falling to a low of $89.75 earlier.

"I don't see any bullish factor in the short term but stocks data and the IEA report are important data and this should be an important week. This time the IEA might be forced to cut because of the economic turmoil," said Tetsu Emori of Japan's Astmax Futures.

Industry analysts expect US crude inventories to have risen last week for the first time in nine weeks, calling for a 600,000-barrel rise as imports recovered.

Distillates would increase by one million barrels, and gasoline by 2.5 million barrels, a Reuters poll showed.

Traders will also watch for the International Energy Agency's (IEA) monthly report to be released later in the day.

The IEA, adviser to 27 industrialized countries, last month raised its global demand forecast for 2008 by 200,000 barrels per day (bpd) to 2.1 million bpd. 

But some now expect the organization to cut its forecast in light of the latest US economic data, which would send a bearish signal to the market.

Opec Secretary-General Abdullah Al Badri reiterated on Wednesday that the producer group stood ready to raise production if justified by fundamentals, but that he did not consider world oil inventories to be low.

Asked about inventory levels in OECD countries, he told reporters: "There is no low inventory. The inventory, the stocks in the OECD countries are within the five-year average."

Opec officials have blamed the weak dollar, geopolitical concerns, a shortage of US refining capacity and speculative trade for helping drive oil prices briefly above $100 a barrel early this month, though prices have since fallen back as traders focus on the growing risk of a US recession.

US oil prices are down more than eight per cent from their all-time peak of $100.09, as concern about a US economic slowdown has outweighed tightening stockpile levels in major consumer nations.

Oil was also affected on Tuesday when Saudi Arabia's oil minister, Ali Al Naimi, said the world's top exporter would raise output when the market needed more crude, responding to a US call for more supply.

US President George W. Bush, on a Middle East tour, earlier urged the Kingdom to help tame soaring oil prices which threaten the US economy. (Reuters)