LONDON (Reuters) - Oil fell below $65 a barrel on Thursday to reverse earlier gains, pressured by concerns demand might continue to weaken as the U.S. economy shrank in the third quarter.
The world's largest economy shrank at a 0.3 percent annual rate in the third quarter, the sharpest contraction in the United States in seven years. The specter of recession prompted businesses to cut investment and unnerved consumers, who slashed spending at the sharpest rate in 28 years.
U.S. crude was down $3.05 at $64.45 a barrel by 12:00 p.m. London Brent crude was down by $3.03 at $62.44.
"Oil markets seem to be pricing for a deep and long recession that will derail oil demand growth this year and next," Jan Stuart with UBS said in a research note.
Oil has more than halved from its record high of $147.27 struck in July and is down by 30 percent so far this month, putting it on track for its biggest ever monthly fall.
Earlier, it rose to as high as $70.60, supported by a weak dollar and hopes that interest rate cuts in the U.S. and China would bolster the world economy.
Asian stock markets gained for a third day and European shares opened higher on signs that investors were rediscovering an appetite for risk in response to global efforts to prevent a deep recession.
The U.S. Federal Reserve cut interest rates by half a percentage point, taking its target for overnight bank lending to 1 percent, the lowest since 2004, in an attempt to revive the sagging economy.
China also cut its interest rates on Wednesday, kicking off what is likely to be a global round of interest rate cuts, with Norway already having followed suit, and Taiwan and Hong Kong cutting rates on Thursday.
The Fed cut pushed the dollar lower, making dollar-priced commodities like oil cheaper and more attractive for holders of other currencies.
Also supporting oil were OPEC's decision last week to cut output by 1.5 million barrels per day, or about 5 percent, to prop up prices and hints that it might further reduce supply.
Nigeria's state oil company said in a statement that it would reduce crude oil export volumes by 5 percent in November and December because of the OPEC cutback.
U.S. weekly inventory data on Wednesday was mixed. Crude oil stocks gained 500,000 barrels, less than the expected 1.4 million rise, but distillate stocks rose 2.3 million, above the 800,000 barrels increase forecast.
(Additional reporting by Alex Lawler in London and Maryelle Demongeot in Singapore; editing by Karen Foster/James Jukwey)
