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Oil falls 5 pct on demand, US stimulus concerns

OIL prices fell 5 percent yesterday to below US$38 a barrel after the US government revised its oil demand forecasts lower and on concerns the US stimulus plan unveiled by the Obama administration will not stem the recession.

The US Senate voted to pass an US$838 billion economic rescue plan, setting the stage for tough negotiations over the final size and scope of spending and tax cuts aimed at reversing the deep recession.

US crude fell US$2.01 to settle at US$37.55 a barrel. London Brent settled down US$1.41 at US$44.61 a barrel.

The US Energy Information Administration revised down its 2009 global oil demand forecast by 400,000 barrels per day from the previous outlook, predicting demand will fall by 1.17 million bpd this year from 2008 levels.

"It's not surprising to me that the EIA and other analysts who look at these markets are constantly revising downward their demand figures, and that would of course be adding pressure to the downside," said Addison Armstrong, director of market research for Tradition Energy, Stamford, Connecticut.

"Any stimulus package, whether it is passed this week or next week or next month, is still going to take at least half a year before any of the effects start to filter into the real economy, and for that reason I don't think the oil markets are excited about it," he added.

The US Treasury rolled out a reworked financial rescue plan on worth possibly more than US$2 trillion to mop up bad bank assets and revive consumer lending.

US stocks also tumbled as bank shares slid on worries about the plan, while the dollar extended gains against the euro.

The economic crisis has slashed world fuel demand and dragged oil prices down from a record high of above US$147 a barrel in July, prompting producer group OPEC to agree to a series of deep output cuts in the second half of 2008.

On Monday, OPEC Secretary-General Abdullah al-Badri reiterated the exporter group's willingness to cut oil production further to steady prices at the group's next meeting on March 15.

However, Algerian energy minister Chakib Khelil said the group would be under less pressure to cut output if oil stabilized near the US$40-a-barrel level

A Reuters poll of analysts ahead of weekly inventory data from the American Petroleum Institute due out yesterday and the EIA on Wednesday forecast crude stocks rose 3.1 million barrels in the week to Feb. 6 as demand continues to flag.


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