Oil prices below $90 in Asian morning trade

SINGAPORE -- World oil prices fell below $90 in Asian trading on Friday amid deepening concerns that weakness in the US economy -- the world's biggest energy consumer -- could sharply dent demand, analysts said.

In morning trade, New York's main contract, light sweet crude for delivery in February, slid 51 cents to $89.62 a barrel.

The contract closed 71 cents lower at $90.13 a barrel in trading on the New York Mercantile Exchange Thursday.

Brent North Sea crude for March delivery fell 20 cents to $88.55 per barrel, after settling 75 cents lower at $88.75 per barrel on Thursday in London.

"The drop in demand is certain in the short term with the economic slowdown in the United States affecting sentiments worldwide. Everyone stops spending, and that will drive prices further down," said Tony Nunan, of Mitsubishi Corp's international petroleum business in Tokyo.

He said trading is volatile and in a "worst-case scenario" prices could fall as low as $69 a barrel.

"I can see prices dropping to the lower 80s or even the higher 70s as we move towards the end of the first quarter," he said.

Oil prices retreated as US stocks fell sharply Thursday, with investors reeling from further dismal housing data and news of a record loss at Wall Street investment and brokerage firm Merrill Lynch.

Some analysts are predicting a prolonged real-estate slump and credit crisis could push the world's largest economy into recession.

On Friday, US President George W. Bush was to propose a series of "short-term, temporary measures" to stimulate the US economy and see it past current troubles, the White House said.

"If the US falls into recession and China slows down we could be headed for one of the most significant corrections of this decade in oil," said Phil Flynn, an analyst at Alaron Trading.

Prices remain at high levels but have shed more than $10 since striking a record in New York of $100.09 per barrel in early January.

"At the moment it seems that economic concerns continue to outweigh all these factors that drove crude prices to just above $100," Sucden analyst Andrey Kryuchenkov said in London.

"All the aspects that underpinned crude prices in 2007 and at the start of this year are still here, with tight supplies, geopolitical fears on the supply side and the broad weakness in the greenback.

But he said that until global economic jitters ease there is likely to be less emphasis on supply fundamentals.

Nunan said oil prices will only start to bounce back from first-quarter lows during the US summer holiday driving season when demand for gasoline peaks.

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IEA Says Oil Prices Could Fall Further

PARIS — Crude oil prices could fall further from this month's record high of $100 per barrel because of weakness in the U.S. economy, the International Energy Agency said Wednesday.

Still, rising demand in China, tensions in Nigeria and the Middle East, and falling oil stocks remain "supportive factors" for prices, the Paris-based agency said in its monthly oil market report.

A "rapid retreat" in crude oil prices from the $100 mark earlier this month shows "how volatile markets remain and, in early 2008, there would appear to be some downside potential," the report said.

Light, sweet crude for February delivery fell $2.30 to settle at $91.90 a barrel on Tuesday _ down from the record high of $100.09 a barrel on Jan. 3. By midday Wednesday, the contract was down another $1.72 to $90.18 a barrel after sinking as low as $89.26 earlier. It was the first time since Dec. 19 the price of crude fell below $90.

World oil demand is expected to rise by 2.3 percent this year to 87.8 million barrels per day, the IEA said, which represents a slight cut from last month's prediction that demand would rise by 2.5 percent this year. The agency added that its forecast could change further if the economic slowdown in the U.S. _ a major oil consumer _ worsens. Weakening U.S. demand would only be "partially" offset by strong economic growth in China and the Middle East, the report said.

However, the IEA said its preliminary figures showed U.S. demand has not declined despite higher pump prices, and increased 0.1 percent in November compared with the same month a year earlier.

In China, a gasoline and diesel shortage suggests "that pent-up demand is significant," the IEA said, citing an "exponential increase" of energy use along with increased demand for cars, trucks, and planes, among other oil-consuming items in the booming Chinese economy.

Production from Iraq fell slightly to 2.3 million barrels per day in December, after hitting a 3 1/2-year high in the previous month, the IEA said. The agency said it was revising upward its estimate for Iraqi output in November to 2.4 million barrels per day, from 2.3 million.

The IEA said Iraq has signed an agreement with an affiliate of Russia's Gazprom to study the reactivation of 300,000 barrels per day of pipeline capacity from Kirkuk to Banias, Syria, that has been out of operation since before the U.S.-led war in Iraq began.

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