Oil falls below $88 on US recession fears

Published Wednesday, February 06, 2008

By Agencies

Oil prices extended their decline on Wednesday to below $88 a barrel as poor US economic data reinforced fears that the world's largest economy is on the brink of a recession, knocking stock markets lower.

US light crude for March delivery fell 87 cents to $87.54 a barrel by 0835 GMT, after tumbling nearly 2 per cent the previous session.

London Brent crude fell 75 cents to $88.07.

"The US economy just attracts more bad news and demonstrates its fragility," said Robert Laughlin of MF Global. "For oil, demand will slip and prices should come under renewed pressure in the short-term."

Financial markets continued their fall for a second day after the Institute of Supply Management reported on Tuesday that activity in the US services sector slumped to a level not seen since the 2001 recession.

Fears the US will slide into a full-blown recession in the wake of a housing slump and the resulting credit crunch have dampened the outlook for global energy demand growth, pulling oil back from a record-high above $100 a barrel hit in early January.

Oil prices were also weighed down by expectations the US Energy Information Administration (EIA) weekly report would show a further rise in crude oil inventories.

A Reuters poll ahead of Wednesday's EIA report calls for a 2.6 million-barrel build in crude stocks, a 1.9 million-barrel decline in distillate stocks and a 2.0 million-barrel increase in gasoline stocks.

Forecasts for normal or slightly above normal temperatures in the US Northeast for the next six to 10 days were also keeping a lid on oil prices.

The Organization of the Petroleum Exporting Countries (Opec) could keep output at current levels when its ministers meet next month if there is no change in the market, Secretary-General Abdullah al-Badri said on Tuesday.

Opec's concerns about slowing global demand prompted the group to keep supply steady at last Friday's meeting and some hawkish members have called for a vote to cut output at its March 5 meeting.

Separately, ships were moving outbound on the Houston Ship Channel early Tuesday afternoon after an overnight shutdown due to fog, the US Coast Guard said. Between 65 and 70 ships were waiting to enter or exit the channel, it said. (Reuters)

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