By Grant Smith Nov. 17 (Bloomberg) -- Oil fell for a second day as Japan entered its first recession since 2001 and China's largest crude producer said demand had declined ``sharply.'' Oil rebounded temporarily when a supertanker owned by Saudi Aramco was hijacked by pirates off the coast of Kenya. OPEC slashed its 2009 demand forecast for a third month as the looming global recession threatens fuel consumption. The group may wait until December to cut output, its president said. ``As the stream of bearish news continues unabated, oil prices are again under pressure,'' said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. ``The only hope for a price recovery is a big production cut by OPEC or a shut-in of some high-cost non-OPEC production.'' Crude oil for December delivery dropped as much as $1.75, or 3.1 percent, to $55.29 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It recovered to $57 after the hijack was reported, and was at $56.28 at 1:29 p.m. in London. Prices remained lower today even after Royal Dutch Shell Plc and Chevron Corp. announced pipeline disruptions in Nigeria. Shell extinguished a fire on a link that carries crude to the Forcados export terminal. Chevron shut its onshore production in the country after a pipeline breach last week. The Saudi-operated tanker Sirius Star was more than 450 nautical miles southeast of Mombasa when a group of Somali pirates managed to scale the 10-meter (32-foot) side of the ship, the U.S. Navy said. Equity-Market Slump Prices declined 6.6 percent last week, touching a 21-month low of $54.67 on Nov. 13 as world equity markets dropped, Germany entered its worst recession in 12 years and U.S. retail sales fell for a fourth straight month. ``Economies are looking poor, the demand outlook is not good, so that's why oil prices are following the stock markets,'' Johannes Benigni, chief executive officer of JBC Energy, said in a television interview. ``In due course, oil prices have to balance around $80. If prices are below, oil companies will not invest sufficiently.'' The Organization of Petroleum Exporting Countries reduced its forecast for average oil consumption next year by 530,000 barrels a day, or 0.6 percent, to 86.68 million barrels a day, according to its monthly oil market report. Japan's economy contracted 0.4 percent in the third quarter, official figures today showed. China National Petroleum Corp., the biggest producer in the world's second-largest oil consumer, said demand has fallen since September because of credit-market turmoil. G-20 Meeting Leaders from the Group of 20 urged a ``broader policy response'' to the financial crisis at a weekend meeting in Washington, citing the potential for additional interest-rate cuts and fiscal stimulus. Brent crude oil for January settlement dropped as much as $1.40, or 2.6 percent, to $52.84 a barrel on London's ICE Futures Europe exchange. It was at $53.70 as of 1:28 p.m. local time. Hedge-fund managers and other large speculators increased their net-short position in New York crude-oil futures in the week ended Nov. 11, according to U.S. Commodity Futures Trading Commission data. Speculative short positions, or bets prices will fall, outnumbered long positions by 52,984 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-short positions rose by 42,441 contracts, or 403 percent, from a week earlier. OPEC is likely to wait until December before cutting output again, the group's president, Chakib Khelil, said in Algeria yesterday. Iran, OPEC's second-largest producer, may seek a production cut of as much as 1.5 million barrels a day when the group meets in Cairo later this month, the Associated Press reported Nov. 15, citing televised comments by the nation's OPEC Governor Mohammad Ali Khatibi. ``We see OPEC reducing supply in October 1.5 million barrels a day,'' said JBC's Benigni. ``At the end of the month in Cairo there might be another cut.'' To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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