Oil deepens slide to seven-week low on US demand woes

Oil prices have now fallen more than $23 a barrel from their all-time peak above $147 on July 11, marking the biggest decline in dollar terms in the market's history. In per cent terms the 15 per cent tumble is the steepest pull-back since early 2007.

US light crude for September delivery fell 46 cents to a seven-week low of $123.98 a barrel after tumbling by more than $4 a barrel on Wednesday, its sixth day of losses over the past seven sessions.

London Brent crude fell 58 cents to trade at $124.71 a barrel at the same time.

The decline came after data late on Wednesday showed a larger-than-expected increase in domestic US gasoline stocks last week, together with weak implied demand. US crude stocks dropped after a sharp decline in imports.

"We do not see any factors to push up prices at all at the moment," said Tetsu Emori, a fund manager at Astmax Co Ltd in Tokyo, adding he expected oil to move towards $117 or $118 a barrel this week.

"In the long run, demand in emerging markets should outweigh slower demand in the US and other countries but for (now) the market is focusing on the short term only," Emori added.

Surging demand from emerging economies such as China and India has fueled a sixfold rise in oil prices since 2002, but concerns over flagging demand in top consumers, such as the United States and Japan, have dampened the rally as of late.

Investment bank Lehman Brothers on Wednesday slashed its forecast for 2008 world oil demand growth due to a steeper-than-expected slowdown in energy consumption in the United States and other OECD countries.

The market's rout appeared to spur some traders to unwind short-dollar/long-oil positions built up earlier this year, helping lift the greenback to a one-month high against the yen and in turn driving down other commodity prices.

Open interest in crude oil futures tumbled to its lowest level since January 2, 2007, indicating that the sharp slide in oil prices was more the result of investors liquidating long positions rather than taking up fresh shorts.

Adding further downward pressure, Hurricane Dolly, which had caused oil prices to firm briefly early this week, caused only minor output cuts at some oil refineries and offshore oil and natural gas facilities in the Gulf of Mexico.

Potentially adding some support to prices, the main militant group in Nigeria's oil-producing Niger Delta said it would attack major oil pipelines in the next 30 days to prove it had not received payment from the government to end its campaign.

"This will trigger the market if it happens, but not just from the warning," Emori said.