By Fayen Wong
Crude prices ease to just above $88 a barrel as US market slumps and and economy contracts.
Oil prices extended their decline on Wednesday to hover just above $88 a barrel as poor US economic data reinforced fears that the world's largest economy is on the brink of a recession.
US light crude for March delivery fell 20 cents to $88.21 a barrel by 1.26 GMT, adding to previous session's 1.8% drop which led to oil prices closing at $88.41.
London Brent crude fell 22 cents to $88.60.
US oil futures and other financial markets tumbled after the Institute of Supply Management reported that activity in the US services sector slumped to a level not seen since the 2001 recession.
The gloomy US economic outlook also cast a pall on Asian markets, knocking regional stocks sharply down on Wednesday. The Australian stock index dropped 2.4%, while the Tokyo's benchmark Nikkei average fell 3.1%.
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.
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 organisation 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.
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 poll by newswire Reuters 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. Refinery runs were forecast to have fallen 0.2 percentage point, to 84.8% of capacity.
Forecasts for normal or slightly above normal temperatures in the US northeast for the next 6 to 10 days were also keeping a lid on oil prices.
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)