LONDON (Reuters) - Oil fell more than 2.5 percent to beneath $58 a barrel on Wednesday on expectations of weaker energy demand, before paring some of its losses after hints OPEC might consider another cut in oil production.
U.S. crude for December delivery hit a low of $57.70, down $1.63 and its lowest point since March 20, 2007, before rallying to $58.10 by 8:00 a.m. EST.
London Brent crude shed $0.88 to $54.83 a barrel.
The bearish tone was set by the International Energy Agency, which said a slowing world economy may force it to cut further its forecast for oil demand growth when it releases its latest monthly report on Thursday.
Turmoil in the world's financial markets has already led the IEA, which advises many of the biggest economies on energy policy, to cut its assumption for 2008 world oil demand growth to the lowest rate in 15 years at just 440,000 barrels per day.
The head of the IEA said on Wednesday the agency had to take into account the changing view of the global economy.
"We are likely to cut demand ... because the IMF changed its projections on the world economy very dramatically," Nobuo Tanaka told Reuters.
The IEA statement reinforced fears among traders and analysts that the ferocity of the recession sweeping through many of the world's biggest economies has not yet been fully factored into projections for oil demand.
GLOBAL RECESSION
"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 toward $50 before finding a floor, something that could spur the Organization of the Petroleum Exporting Countries into further trimming oil production.
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.
Kuwait's oil minister said on Wednesday there was a surplus in the oil market.
"If there is a surplus in the market and unwanted stocks, I think OPEC has the right to look into this matter seriously," Mohammad al-Olaim told reporters when asked if OPEC needed to cut again. "But you can't jump to an early conclusion."
Oil demand forecasts are in the process of being adjusted in the light of new economic data.
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.
Frederic Lasserre, an analyst at Societe Generale in Paris, said stock markets rather than supply and demand fundamentals would probably 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 fairly steady on Wednesday as economic gloom was balanced by hopes for a rescue package for the U.S. auto sector.
U.S. weekly oil 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.
(Additional reporting by Barbara Lewis in London and Sambit Mohanty in Singapore)
