OIL prices fell yesterday on a sharp increase in US crude oil inventories and rising concerns that economic problems could erode fuel demand in the world's top energy consumer.
US crude settled down US$1.06 at US$90.84 a barrel, after falling to US$89.26, the lowest level since Dec. 18. London Brent crude fell US$1.23 to settle at US$89.75 a barrel.
US crude stocks swelled by 4.3 million barrels to 287.1 million barrels last week, the first build in nine weeks, Energy Information Administration data showed.
Analysts had forecast a rise of 600,000 barrels.
"The latest EIA data confirm the weakening trend in demand and will keep the market bearish in combination with recessionary fears that have hit all financial markets," Tom Knight, a trader with Truman Arnold, said.
US crude futures have fallen from a record high above US$100, which they hit this month on concerns a potential US recession could hurt demand growth, pushing analysts to revise their consumption forecasts.
The International Energy Agency, an adviser to industrial countries, yesterday cut its 2008 global demand growth forecast by 130,000 barrels per day to 1.98 million bpd and said it may lower the figure further.
"We have seen some negative studies on the macroeconomic front, and the IEA report this morning is moderately bearish," said Mike Wittner, head of oil research at Societe Generale.
"Looking forward, I think prices are going to fall further. Essentially, the market seems to be balanced in the first quarter this year."
The IEA also warned, however, that oil inventories in member countries of the Organization for Economic Cooperation and Development had fallen to their lowest point in more than four years.
"The oil market has tightened. There's no doubt about that," said Lawrence Eagles, head of the IEA's Oil Industry and Markets division. "In terms of forward cover, we're at the lowest since November 2003."
US President George W. Bush called upon the Organization of Petroleum Exporting Countries to hike output to help lower prices during a trip to the Middle East this week.
OPEC officials say factors beyond their control sent oil on its record run to triple digits, and Qatar said Wednesday the producer group did not have to raise output when it meets in February.
"I don't think the market needs more oil," Qatari Oil Minister Abdullah al-Attiyah told Reuters.
OPEC President Chakib Khelil said oil prices would likely hold between US$80 and US$90 in the first quarter.
He added that, if oil inventories recovered in the second quarter -- when demand typically dips -- he saw no reason for the group to raise production.
Saudi Arabia, the world's top oil exporter, vowed on Tuesday to boost output when the market needed more, although Saudi Oil Minister Ali al-Naimi did not say whether OPEC would do so at its meeting in Vienna.