Oil price heads to $34 per barrel

Oil fell more than two dollars towards $34 per barrel on Monday on signs of a resolution of a gas row between Russia and Ukraine and after a ceasefire between Israel and Hamas in Gaza eased supply concerns.

The market also remained under pressure from expectations that the weakening global economy would erode oil demand. The International Energy Agency and other forecasters cut their 2009 demand forecasts last week.

"Right now the economy is dominating," said Harry Tchilinguirian, analyst at BNP Paribas. "The market is very volatile and the signs are that demand is weakening."

US crude for February delivery, which expires on Tuesday, slid $2.62 to a low of $33.89 a barrel by 10.00, UAE time, before recovering to trade at $34.53. London Brent crude for March fell $2.77 to a low of $45.11 before recovering to $44.50 by 10.00, UAE time.

Only just over 3,100 lots were traded on the February US crude contract. The March contract was much more active as more than 31,000 lots changed hands.

Russia and Ukraine were aiming to sign an agreement on Monday to restart gas flows to Europe through Ukraine after finally agreeing a price for 2009 supplies. Also easing concern about energy supplies, Israeli forces began to pull out of the Gaza Strip following a tentative truce with Hamas after the three-week war, easing tension in a region which pumps about a third of the world's oil.

Prices came under pressure on Friday after the International Energy Agency (IEA), an adviser to industrialised countries, joined the ranks of forecasters predicting a fall in world oil demand in 2009.

The Organization of the Petroleum Exporting Countries (OPEC), the oil exporters' group, has cut production three times since September to try to stem falling prices. It might consider reducing output again, Algeria's oil minister Chakib Khelil said on Saturday.

Oil has collapsed by more than $113 a barrel since reaching a record high of $147.27 a barrel in the summer as the global economic slowdown has eroded demand and consumer spending.

Still, some in the oil market think there is little room for prices to fall much further.

"It looks as if Brent will hold in the current $40-$50 range," said Christopher Bellew, a broker at Bache Commodities. "I do not anticipate new lows."

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