US oil falls 7% to below $35

US oil prices fell more than seven per cent to below $35 a barrel yesterday as grim economic indicators battered markets and raised concerns about slumping demand.

A new report suggesting eastern Europe's economic slump will drag Western banks further into the red fanned fears yesterday that emerging economies will deepen the recession in the West.

Japan, a big oil consumer, has suffered a sharper contraction than other major economies because of its heavy dependence on exports combined with persistently soft domestic demand.

US crude for March delivery fell $2.77 to $34.74 a barrel by 11:43 a.m. EST (1643 GMT). London Brent crude for April delivery dropped $1.83 to $41.45 a barrel.

Much of the world has been pushed into recession by the credit crisis, pushing down fuel demand and sending crude oil prices from record highs over $147 a barrel in July.

"The economic outlook will continue to dominate the first half of 2009. The United States, eurozone and Japan are in synchronized recession," Harry Tchilinguirian, oil analyst at BNP Paribas, said. "Opec supply cuts are only going to impact consuming country inventories with a lag."

Algerian Oil Minister Chakib Khelil reiterated that the Organisation of Petroleum Exporting Countries would be more likely to cut oil production again in March, if prices remained below $40 a barrel.

Earlier, Iraq's Oil Minister, Hussain al-Shahristani, said Opec should look to further cuts in supply, if curbs to date fail to balance the market.

The producer group agreed to a series of deep output cuts during the second half of 2008 in order to help counter the drop in demand and prices.

US stocks tumbled on fresh signs the economic recession is worsening and worried that efforts to stabilise the beleaguered financial system may not prove sufficient.

US President Barack Obama was due to sign a $787 billion Economic Stimulus Bill into law yesterday, but investors were fearful that the measure would not help soften the impact of the 14-month-old recession soon enough.

Factory activity in New York state fell to a record low in February, with new orders and employment falling sharply as the US recession deepened, according to a survey.

US crude for March delivery, which expires on Friday, was trading at a $4.30 discount to April crude due to high inventories at the storage hub in Cushing, Oklahoma, the delivery point for the US futures contract.