Oil falls on economic weakness, ebbing demand

Oil prices fell around a dollar on Wednesday, dragged lower by expectations economic weakness will cut further into demand for crude.

U.S crude fell more than $1 to $77.45 a barrel and was trading 61 cents lower at $78.02 by 0926 GMT. London Brent crude dropped by 59 cents to $73.94.

Stock markets also fell broadly and the U.S. dollar weakened against the yen as global recession fears returned to centre stage on Wednesday after trillions of dollars pledged by governments around the world for bank bailouts.

Recession may further curtail oil demand in the world's top consumer the United States and other key markets.

"I can't see anything really to drive prices higher in the short term. At the moment, prices are just taking their time and trading in a tight range," said Peter McGuire, managing director of Commodity Warrants Australia.

Traders will closely watch weekly U.S. inventory data on Thursday for a direction of U.S. oil demand. Analysts in a Reuters poll expect increases in crude and oil product products.

The data is forecast to show a 1.9 million barrel build in crude stocks, a 600,000 barrel build in distillates and a 2.9 million barrel rise in gasoline inventories last week.

Limited support came as Omar grew from a tropical storm to hit hurricane strength on Tuesday as it headed toward Puerto Rico and the small islands of the northeastern Caribbean, the U.S. National Hurricane Center said.

The storm has disrupted a refinery in Venezuela and movements of some tankers.