U.S. oil fell by almost 7 percent to around $35 a barrel on Tuesday as grim economic indicators kept the focus on the worldwide slump in demand, outweighing lower supplies due to OPEC cutbacks.
Manufacturing production in New York State fell to a record low in February, a survey from the regional central bank showed. A Reuters poll showed confidence among Japanese manufacturers remained near record lows.
"The economic outlook will continue to dominate the first half of 2009. The United States, eurozone and Japan are in synchronised recession," said Harry Tchilinguirian, oil analyst at BNP Paribas. "OPEC supply cuts are only going to impact consuming country inventories with a lag."
U.S. crude for March delivery fell $2.52 to $34.99 per barrel by 1500 GMT. London Brent crude for April dropped $1.89 to $41.39.
The move was in line with a general fall in commodity prices as the Reuters-Jeffries CRB index of 19 mostly U.S traded commodity futures slipped 2.27 percent to 208.30.
The floor of the New York Mercantile Exchange was closed for Presidents Day on Monday, although electronic trading continued as usual.
U.S. crude for March expires on Friday and it was trading at a $4.30 discount to April due to high inventories at the storage hub in Cushing, Oklahoma. Brimming U.S. stocks are also keeping U.S. crude at an atypical discount to Brent.
COMMODITIES DECLINE
World oil demand has fallen in the last few months as recession triggered by the banking crisis spreads through all continents. Oil has collapsed from a record high above $147 reached last year.
Oil's drop has prompted the Organization of the Petroleum Exporting Countries to cut production three times by a total of 4.2 million barrels per day (bpd), about 5 percent of daily world demand, since September.
OPEC has implemented about two-thirds of the promised supply reduction, according to industry surveys. Officials from the group are raising the prospect of a further reduction at the next meeting, on March 15.
Iraq's oil minister, Hussain al-Shahristani, said OPEC should look to further cuts in supply if curbs to date fail to balance the market.
Later on Tuesday U.S. President Barack Obama is due to sign the $787 billion stimulus bill, while indicators including manufacturing production in New York State and U.S. home builder sentiment may set the market's tone.
Russia signed its biggest ever energy deal with China on Tuesday, under which its oil firms will receive $25 billion in loans in exchange for long-term crude supplies, a source close to the talks told Reuters.
