Oil down 4.3 percent as IEA predicts big demand drop

NEW YORK Wed Feb 11, 2009 3:51pm EST

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NEW YORK (Reuters) - U.S. oil prices fell 4.3 percent on Wednesday after the International Energy Agency said global energy demand this year would post its biggest decline since 1982 under the weight of the economic crisis.

A U.S. government report showing a larger-than-expected increase in nationwide crude inventories -- the seventh consecutive weekly increase -- encouraged the selling, traders and analysts said.

U.S. crude fell $1.61 to settle at $35.94 a barrel while London Brent fell 33 cents to $44.28. U.S. crude has been running at a big discount to Brent due to a supply glut at the main U.S. storage hub in Oklahoma.

U.S. oil's losses came after the Paris-based IEA said in its monthly report that global oil demand would fall by 980,000 barrels per day (bpd) in 2009, a decline that would exceed its previous forecast for a 500,000 bpd contraction.

Oil prices have dropped about $110 a barrel since last July's peaks due to the global economic slowdown and its impact on consumer and business fuel consumption, raising alarms for OPEC member nations that have agreed to record output cuts to counter the weakness.

Oil's losses were encouraged by a separate report from the U.S. Energy Information Administration that showed crude inventories rose last week by 4.7 million barrels, more than the 3.1 million build analysts had expected. <EIA/S>

The EIA report also showed gasoline inventories dropped last week by 2.6 million barrels -- countering analysts' expectations for a small build.

"The case for crude's weakness is clear, having posted a larger than expected stock build here, but product futures are supportive," said Tom Knight, trader at Truman Arnold in Texarkana, Texas.

U.S. gasoline futures rose 2.59 cents to settle at $1.2698 a gallon.

Leading oil exporter Saudi Arabia said current oil prices were unjustified and unsustainable.

"If today's low prices continue long enough, they will sow the seeds for future price spikes and volatility," Saudi Oil Minister Ali al-Naimi said in Houston on Tuesday.

Data from China's General Administration of Customs showed January crude oil imports to the world's second-largest energy consumer had fallen by 8 percent to the lowest level for 15 months.

(Additional reporting by Fayen Wong and Dharmasari Haroun in Singapore; Editing by David Gregorio)

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