LONDON (Reuters) - Oil fell more than 2.5 percent on Wednesday to trade below $58 a barrel for the first time in 20 months as expectations of weaker energy demand more than offset news of reductions in supply.
The move, spurred by another slide on stock markets, extended a fall of 5 percent on Tuesday and analysts said the mood in the market was so bearish that prices could keep falling toward $50 a barrel.
News that OPEC could cut supplies by an additional 1 million barrels per day (bpd) when it meets in Algeria next month did little to prevent the downward spiral that has knocked 60 percent off oil's value from a record high of over $147 in July.
U.S. crude for December delivery hit a low of $57.70, down $1.63, before rallying to around $58.34 at 6:10 a.m. EST. In the previous session, the market settled down $3.08 at $59.33 a barrel, its lowest settlement in 20 months.
London Brent crude shed $0.82 to $54.89 a barrel.
"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."
Analysts expect the International Energy Agency (IEA) to downgrade its forecasts for demand in its monthly oil market report to be published on Thursday.
"It's bearish news all around. I expect the IEA to further revise down the energy demand forecasts," said Tobias Merath, head of commodities research at Credit Suisse in Singapore.
"Even the new set of industrial production numbers due from China and Japan this week should be having a bearish undertone."
FORECASTS CUT
China's industrial production growth slowed to about 8 percent in the year to October, the first time it has been in single digits since the end of 2001, an official familiar with the data said this week. The official data is due on Thursday.
In a research note, Credit Suisse added the U.S. Department of Energy would probably cut its one-year WTI price forecast when its publishes its Short Term Energy Outlook on Thursday.
The World Bank has slashed its 2009 forecast for developing countries. It revised downward its growth forecast for developing economies to 4.5 percent for next year, from 6.4 percent projected in June, on a combination of financial turmoil, slower exports and weaker commodity prices.
An OPEC source said on Tuesday the group might cut oil output by a further 1 million barrels per day (bpd) when it meets next month in Algeria because of slowing world demand.
OPEC agreed last month to cut production by 1.5 million bpd from November 1 after the sharp fall in oil prices.
U.S. weekly inventory data was expected to show an 800,000-barrel rise in crude stocks last week as demand continues to slow, a Reuters poll of analysts found.
Distillate stocks should rise by 500,000 barrels and gasoline by 800,000 barrels, the poll showed. The data will be released on Thursday, a day later than usual due to the U.S. Veterans' Day holiday on Tuesday.
Frederic Lasserre, an analyst at Societe Generale in Paris, said stock markets rather than supply and demand fundamentals would tell the oil market where the floor would be.
"The signal is going to come from equity markets," he said. "There is an extremely high correlation between equities and commodities."
U.S. shares were expected to open lower again on Wednesday as economic gloom eclipsed hopes for a rescue package for the U.S. auto sector.
European shares fell in early trade with the FTSEurofirst 300 index of top European shares down 0.5 percent at 879.02 points, after slipping more than 4 percent on Tuesday.
(Additional reporting by Barbara Lewis in London and Sambit Mohanty in Singapore; Editing by James Jukwey)
