Oil falls toward $78 on global recession, as demand drops

SINGAPORE – Oil fell on Wednesday but held above $78, as traders' fears of a global recession just about outweighed optimism for an economic recovery spurred by bank rescue schemes.

Plans by the United States and European powers to infuse trillions of dollars into ailing financial houses sparked a brief rally in global markets this week, before prevailing bleak economic sentiment resurfaced.

U.S crude fell 48 cents to $78.15 a barrel by 0508 GMT, while London Brent crude slipped 33 cents to $74.20.

Oil settled more than 3 percent lower on Tuesday after having climbed more than $3 a barrel earlier in the session, in line with Wall Street’s weaker close following its biggest one-day gain ever.

"I can’t see anything really to drive prices higher in the short term. At the moment, prices are just taking their time and trading in a tight range," said Peter McGuire, managing director of Commodity Warrants Australia.

Slumping demand in the United States and other major consumers, the financial crisis and a flight of investors into safe haven investments have dragged crude off record peaks over $147 a barrel hit in July.

While No. 2 consumer China saw September crude imports grow by double-digit percentages for the second month, the impact of the financial turmoil and delays to some new refinery projects may mean slower consumption in coming months.

China’s annual economic growth probably dipped below 10 percent in the third quarter, ending a run of 10 straight quarters in double digits, as the world’s No. 4 economy is hit by slowing global demand, a Reuters poll showed.

"It’s not all doom and gloom… with prices coming down tremendously from the highs of July, money can now feed other parts of people’s consumption instead of going straight to the petrol pumps," McGuire said.

In the United States, average retail gasoline prices fell 33.3 cents over the last week to $3.15 a gallon, the biggest price decline ever recorded by the government, the Energy Department said on Tuesday.

Some price support came from news that OPEC’s seaborne oil exports, excluding Angola and Ecuador, fell 600,000 barrels per day (bpd) in September, Lloyd’s Marine Intelligence Unit (LMIU) said on Tuesday.

Omar grew from a tropical storm to hit hurricane strength on Tuesday as it headed toward Puerto Rico and the small islands of the northeastern Caribbean, the U.S. National Hurricane Center said.

The storm has disrupted activity at Venezuela’s 200,000 barrel-per-day Puerto La Cruz refinery, knocking out power to some units and forcing authorities to suspend tankers’ movements at the facility’s port, the state oil company said.

On Thursday, traders will watch for weekly U.S. inventory data, with analysts calling for a 1.9 million barrel build in crude stocks, a 600,000 barrel build in distillates and a 2.9 million barrel rise in gasoline inventories. Reuters