VIENNA: Oil prices looked for direction Thursday as traders weighed fears that a looming world recession will crimp demand against speculation that OPEC may cut output to keep prices from falling too far.
Oil fell towards $86 on Thursday, pressured by expectations that demand will fall sharply if the credit crisis pushes the global economy into recession.
Prices had dropped to 10-month lows this week, which prompted OPEC to consider holding talks to review output.
Venezuelan President Hugo Chavez said Wednesday that some members of the Organization of Petroleum Exporting Countries want an extraordinary meeting before the group s Dec. 17 meeting in Algeria.
OPEC s decision last month to cut production by 520,000 barrels a day failed to halt oil s slide.
I think OPEC will definitely start to talk the market up, said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. They ll try to keep their members to their quotas. Then if prices fall below $80, they may cut production.
U.S. light crude for November delivery was $1.85 lower at $87.10 a barrel by 1517 GMT. On Wednesday it hit a 10-month low of $86.05.
London Brent crude was down $1.77 at $82.59 a barrel. Oil has dropped about 40 percent from a peak of $147.27 a barrel in July.
OPEC oil ministers have said they are considering an extraordinary meeting to discuss the impact of the financial crisis.
OPEC members will have an emergency meeting to review oil market conditions in mid-November in Vienna, Iran s oil minister Gholamhossein Nozari told official IRNA news agency.
The US Federal Reserve, along with central banks in Europe and China cut interest rates Wednesday in a bid to jump-start lending. But markets in the US and Europe sank in response Wednesday. The Dow Jones industrial average lost another 2 percent, and the index has shed more than a third of its value since its all-time high set one year ago Thursday. European stocks rose on Thursday.
Traders are expecting the world to move toward recession, with the US and Europe especially a concern, said Rigby. Based on the short-term trend, you could see prices approaching $80 next week.
Nigeria, Qatar and Iraq, all members of the group, on Wednesday floated the idea of a cut in output.
It will be interesting to see how the cartel juggles things in a down market, said Edward Meir of broker MF Global.
Much will ride on the Saudis and whether they will agree to restrain their massive production, he said. We suspect they will resist sharp cutbacks.
Weighing on prices was evidence of falling demand in the US, where crude inventories jumped by 8.1 million barrels last week while gasoline stocks surged 7.2 million barrels, the Energy Information Administration said Wednesday in its weekly inventory report.
Both increases far exceeded expectations, reflecting both persistently weak demand and a recovery of Gulf Coast energy output following shutdowns prompted by Hurricane Ike last month.
Overall demand for oil fell for a fifth straight week and year-on-year demand fell for a 24th straight week this year, noted trader and analyst Stephen Schork in his Schork Report. In fact last week demand … fell to the lowest level since the week following the 9/11/2001 attacks.
Demand for gasoline was also weaker, falling 5.3 percentage points over the four weeks ended Oct. 3 compared to the same period a year earlier, according to the EIA report.
Crude has fallen about 40 percent since surging to an all-time record $147.27 a barrel on July 11.
The bubble has burst, Rigby said. Before any real increase in prices, we need to see some good economic data from around the world, and that could be a few months. -Associated Press writer Alex Kennedy contributed to this report from Singapore, with additional reporting by Reuters.