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Oil drops below $89 per barrel

Oil fell further below $89 a barrel yesterday, adding to sharp losses the previous session, as fears over a possible US economic recession prompted more profit-taking.

US light crude for March delivery eased by 66 cents to $88.30 a barrel, after tumbling more than 3% on Friday.

London Brent crude fell 50 cents at $88.94.

Mounting US economic problems, including high energy costs, have prompted analysts to cut forecasts for oil demand growth.

Crude prices have fallen by more than 10% from the record $100.09 hit on January 3, but declines below $90 have been limited and oil has traded around the $90-a-barrel level for much of the past three weeks.

Earlier in the session, oil found some support from a rebound in world equity markets.

World stocks hit a two-and-a-half week high yesterday and emerging market assets also rallied as last week's news of major company deals eased concerns the credit crisis might be hurting corporate and economic activity.

“Oil prices have begun to track global equity markets a lot closer in the last few sessions so this could be explain the rebound in prices this morning,” said Rowan Menzies, head of research at Commodity Warrants Australia in Sydney.

“But in the longer term, oil prices are expected to fall further because of a slower US economy. I think the market will be seeing a few more knocks in the coming months.”

Oil prices fell by nearly $3 on Friday after a government report showed US employers cut 17,000 jobs in January, the first decline in four-and-a-half years and the latest signal all was not well in the world's biggest economy.

Crude speculators on the New York Mercantile Exchange last week trimmed net long positions - or bets that the market would rise - according to data from the Commodity Futures Trading Commission released on Friday.

Net crude long positions fell to 29,845 in the week to Jan 29, the lowest level since mid-November.

Also on Friday, the Organization of the Petroleum Exporting Countries (OPEC) at a meeting in Vienna agreed to leave its output unchanged for now.

But Gulf producer Kuwait said a supply rise would be discussed, while Iran and Venezuela suggested a cut might be in order when the group next meets in a month's time.

Senior OPEC officials yesterday downplayed talk of any change in oil output, saying a decision would hinge on the health of the global economy.

“Everything is possible according to the market. We really cannot decide at this time,” OPEC Secretary-General Abdullah al-Badri said. (China Daily)