Oil slips below $58 as demand weakens

Oil fell more than 2 percent on Wednesday to trade below $58 a barrel for the first time in 20 months as expectations of weaker energy demand more than offset news of reductions in supply.

The move extended a fall of 5 percent on Tuesday and analysts said the mood in the market was so bearish that prices could keep falling towards $50 a barrel.

News that OPEC could cut supplies by an additional 1 million barrels per day (bpd) when it meets in Algeria next month did little to prevent the downward spiral that has knocked 60 percent off oil's value from a record high of over $147 in mid-July.

US crude for December delivery hit a low of $57.90, down $1.43 by 1.03pm Dubai time, before rallying to around $58.40 at 0930 GMT. In the previous session, the market settled down $3.08 at $59.33 a barrel, its lowest settlement in 20 months.

London Brent crude shed $1.20 to $54.51 a barrel.

"Fear that the global recession is worsening day by day is driving this market down," said Rob Laughlin, senior oil analyst at brokers MF Global. "Demand for oil is deteriorating week by week."

Analysts expect the International Energy Agency (IEA) to downgrade its forecasts for demand in its monthly oil market report to be published on Thursday.

"It's bearish news all around. I expect the IEA to further revise down the energy demand forecasts," said Tobias Merath, head of commodities research at Credit Suisse in Singapore.

"Even the new set of industrial production numbers due from China and Japan this week should be having a bearish undertone."

China's industrial production growth slowed to about 8 percent in the year to October, the first time it has been in single digits since the end of 2001, an official familiar with the data said earlier this week. The official data is due on Thursday.

In a research note, Credit Suisse added the US Department of Energy would probably cut its one-year WTI price forecast when its publishes its Short Term Energy Outlook on Thursday.

The World Bank has slashed its 2009 forecast for developing countries and has offered new financing of more than $100 billion over the next three years to help cope with the financial crisis.

It revised downward its growth forecast for developing economies to 4.5 percent for next year, from 6.4 percent projected in June, on a combination of financial turmoil, slower exports and weaker commodity prices.

An OPEC source said on Tuesday the group might cut oil output by a further 1 million barrels per day when it meets next month in Algeria because of slowing world demand.

OPEC agreed last month to cut production by 1.5 million bpd from Nov. 1 after the sharp fall in oil prices.

But Qatar, one of OPEC's smallest members, has told at least two term buyers in Asia it would not cut its crude oil supplies to them for November and December, sources with the lifters said on Wednesday.

This came even after Energy Minister Abdullah al-Attiyah told Reuters last week that Qatar had cut crude oil exports to Asia by about 40,000 bpd from this month in line with the OPEC agreement. (Reuters)

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