By Fayen Wong
Prospects of output cut by OPEC overshadowed by fears of prolonged global recession.
Oil shed early gains on Friday and fell back towards the previous day's 16-month low below $68 a barrel, as investors shrugged off a likely OPEC production cut to focus to signs of a prolonged global recession.
Asian stocks fell on Friday, led by a 7 percent drop in Japan's Nikkei average and South Korean shares, as the global economic slowdown slashed earnings prospects for an array of companies.
Bleak outlooks from world car makers and a barrage of job cuts by major U.S. companies, including Chrysler and Xerox, have also deepened fears of an extended global recession.
US light crude for December delivery fell 21 cents to $67.53 a barrel by early on Friday, erasing earlier gains of as much as $1.66. London Brent crude was down 26 cents at $65.66.
"If it wasn't for an expected OPEC cut, there is a strong possibility that oil prices would be falling a lot more considering how poorly Asian stocks are performing," said David Moore, a commodities strategist at the Commonwealth Bank of Australia.
Oil has plunged more than 50 percent from its record high above $147 in July and touched a 16-month low of $65.90 on Thursday as the financial crisis eats into energy demand in the United States and other industrial countries.
OPEC ministers, anxious to arrest a deep price slide and yet cushion a bruised economy, said on Thursday they had agreed they must cut output, but had not decided by how much.
Analysts polled by Reuters anticipate the cartel will reduce output by between 1 million and 1.5 million barrels per day.
OPEC President Chakib Khelil said on Thursday the producer group could consider cutting back its oil output in several steps and added that he favours OPEC's reference crude oil basket price at $90 to ensure energy projects go ahead.
Iran suggested on Thursday that a 2 million bpd cut would be needed to stabilise oil prices, while Qatar said at least a 1 million bpd reduction was required.
But analysts said the slowing global economy could limit the impact of any oil supply cuts and that oil markets would remain influenced by deleveraging and risk aversion.
"Extreme risk aversion remains at the top of the market agenda in the current cyclical downturn," Harry Tchilinguirian, a senior oil market analyst at BNP Paribas Commodity Derivatives in London, said in a research note.
The grip of the financial crisis has reached far beyond the banking sector, with electronics maker Sony Corp and US online retailer Amazon.com Inc cutting their outlooks in the face of weakening consumer demand.
The number of US workers filing new claims for jobless benefits also rose by a larger-than-expected 15,000 last week, government data on Thursday showed. (Reuters)