Oil extends fall, eyes on U.S. oil demand

Oil fell around $1 on Wednesday, after sliding more than $6 the previous session, the steepest in dollar terms in 17 years as demand fears swelled on worsening prospects for the U.S. economy.
U.S. crude was 10 cents lower at $138.64 a barrel by 0659 GMT, after briefly dropping by more than $1 to $137.22 a barrel.
But oil remained off a low of $135.92 overnight and after the biggest one-day drop since 1991, when prices tumbled at the start of Operation Desert Storm.
London Brent crude fell 21 cents to $138.54 a barrel, after earlier hitting $137.70.
"I think what happened yesterday, especially with the dollar weakening, suggests that the market is taking a little more focus on the real fundamentals," said Mark Pervan, head of commodity research at ANZ.
U.S. Federal Reserve Chairman Ben Bernanke said the weak housing market and high energy and food prices were putting additional stress on a U.S. economy already under considerable strain from the credit crisis fallout.
The U.S. dollar fell to a record low against the euro on Tuesday before recovering some ground.
Investors have been pumping cash into oil and other commodities this year looking for a safe bet against inflation and a sliding dollar, pushing crude up nearly 50% to a record above $147 a barrel earlier this month.
Oil's six-year rally has been kept on the boil by ballooning demand from developing economies such as China and India.
But consumers in large economies like the United States, already feeling the pinch of the credit crunch and housing crisis, have begun to scale back on energy use, with retail gasoline demand down more than 5% last week from a year ago, according to MasterCard Advisors.
"The market is coming to the realization that OECD demand is going to start contracting, even OPEC has trimmed demand growth," Pervan said.
Oil cartel OPEC on Tuesday cut its global demand forecast for 2008 for the fourth time this year, adding that consumption would continue to slow in 2009.
Prices were also weighed down by the restoration of production at Chevron's 120,000 barrels per day (bpd) Escravos pipeline in Nigeria, while the five-day workers strike at Brazil's Petrobras oil platforms did not interrupt demand.
A revised Reuters poll ahead of weekly U.S. inventory data to be released on Wednesday forecast U.S. crude stocks fell 2.1 mln barrels last week, while gasoline inventories dropped 400,000 barrels and distillates rose by 2.0 mln barrels.