Oil drops 4.4% to below US$57

OIL fell more than four per cent to below US$57 a barrel yesterday, its lowest level for 20 months, on expectations of weaker energy demand and as global stock markets headed downwards.

The fall in oil prices prompted Opec officials to say they might decide to cut oil production further in an attempt to adjust the balance between output and demand.

US crude for December delivery hit a low of US$56.73, down US$2.60 and its lowest point since March 20, 2007, before rallying to US$56.92 by 1550 GMT.

London Brent crude shed US$2.27 to US$53.44 a barrel.

Gloom over the state of the economy was underlined by a lower opening on Wall Street, where the Dow Jones industrial average slipped 1.95 per cent or almost 170 points before recovering to 8,578.79 by 1530 GMT.

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

He said crude oil prices could well head down towards US$50 before finding a floor, something that could spur the Organisation of the Petroleum Exporting Countries into further trimming oil output.

Opec President Chakib Khelil yesterday said the group could cut oil supplies for a second time since October if prices continued to fall and the world economy weakened further.

"If the prices continue their decline most probably Opec will have to take a further decision on a cut in supply," Khelil, who is also Algeria's Energy and Mines Minister, told Reuters in an interview in Algiers.

The remarks follow other calls from Opec countries for action to stem the oil price slide, which will reduce their revenues from oil sales and make domestic spending programmes harder to finance.

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

Oil demand forecasts are in the process of being adjusted in the light of new economic data.

Credit Suisse said in a note the US Department of Energy would probably cut its one-year US crude price forecast when its publishes its Short Term Energy Outlook today.Reuters

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