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Oil prices dip on demand worries

US oil prices dipped into negative territory yesterday as dealers worried a slow and bumpy economic recovery could delay a rebound in ailing world energy demand.

US crude fell 40 cents to US$59.29 a barrel by 1810 GMT, extending a decline that shaved 11 percent from the price last week. London Brent crude fell 6 cents to US$60.63.

The losses came after US data showed disappointing US consumer spending in June alongside a larger-than-expected increase in producer prices -- a reflection of inflation.

Adding gloom to the economic outlook, developed countries are expected to lose nearly 30 million jobs from the end of 2007 to the end of 2010, the Organization for Economic Cooperation and Development said.

"When the 'wealth effect' disappears and the savings rate goes from negative to positive that suggests to me consumers are still stunned and not about to return to their erstwhile profligacy any time soon," said Mike Fitzpatrick, vice president at MF Global in New York.

In a sign of soft demand in leading energy user the United States, Mastercard SpendingPulse said on Tuesday that gasoline consumption over the peak travel July 4 holiday was 4.3 percent lower than a year ago.

The Organization of the Petroleum Exporting Countries, meanwhile, said world demand for its oil would fall by 380,000 barrels per day to 28.11 million in 2010 compared with this year.

For the nearer term, the market will look to US inventory data for release by the American Petroleum Institute on Tuesday and the US Energy Information Administration Wednesday.

Analysts polled by Reuters predicted crude stocks would have fallen for a sixth straight week, but distillate inventories -- which include diesel and are already at a nearly 25-year high -- were expected to rise again.

Gasoline stocks were also expected to rise.

Some analysts identified the widening offensive by Nigeria's main militant group against Africa's largest oil producer as a bullish factor that could limit supplies.

The Movement for the Emancipation of the Niger Delta (MEND) sabotaged an oil dock in Lagos state, killing five people in the group's first attack outside the Niger Delta since it began its latest campaign.


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