Oil deepens retreat below $90; eyes Fed, stocks

By Jiwon Chung

SINGAPORE, Oct 31 (Reuters) - Oil extended its sharp reversal on Wednesday from this week's record high, falling back below $90 a barrel as a recovery in Mexican exports and forecasts for higher U.S. crude stocks eased immediate supply concerns.

Uncertainty over how aggressive the U.S. Federal Reserve will be in fueling economic growth also prompted profit-taking a day ago, although the dollar remained near its recent record low on Wednesday, as most investors bet on another rate cut this week.

U.S. oil futures CLc1 fell 63 cents to $89.75 a barrel by 0247 GMT, after tumbling by 3.4 percent a day ago, fading from Monday's record high of $93.80. London Brent LCOc1 shed 49 cents to $86.95.

Just as Federal Reserve policy-makers began meeting on Tuesday against the backdrop of a still-plummeting U.S. housing market that is sapping consumer optimism, the Wall Street Journal reported that a further reduction in rates was not a sure thing.

Ahead of its rate decision toward day's end, oil traders will be looking for an expected 600,000-barrel build in weekly U.S. crude stockpiles, buffering inventories that are running about 6 percent below a year ago. [EIA/S]

Analysts also expect a 500,000-barrel decline in distillate stocks and a 100,000-barrel drop in gasoline, a Reuters poll found, despite signs of weaker U.S. consumption.

"We are in the low-demand season right now before winter starts, so we will see a build in inventories if demand doesn't pick up," said Tony Nunan, risk manger for Mitsubishi Corp in Tokyo.

Rising stocks may give OPEC even more cause to resist pressure to increase production, especially with its agreed 500,000 barrels per day (bpd) rise due to take effect on Thursday.