Oil: Price dives below US$50

NEW YORK - Oil prices slumped below US$50 on Tuesday as concerns over rising crude inventories in the United States and a softening Western economy weighed on the market.

US light crude settled down US$1.42, or nearly 3 per cent, to US$49.50 a barrel, eclipsing a gain of US$1.20 on Monday. Prices are 15 per cent below the record high US$58.28 struck April 4.

"This is significant. It cleared out yesterday's 'fake' rally, which was a bounce in a bear market," said Ed Silliere, analyst at Energy Merchant Intermarket Futures LLC.

In London, Brent crude fell 57 cents to US$50.52 a barrel.

More selling pressure is expected with crude oil stocks in the United States, the world's top economy, registering the highest levels in nearly three years, traders said.

Analysts polled by Reuters forecast US commercial crude oil inventories rose 1.0 million barrels last week. This would be the 11th increase in 12 weeks due to soaring imports.

Petrol and heating oil supplies might have also risen as demand softened, the poll showed. The US Energy Information Administration will release its weekly report on Wednesday at 1430 GMT.

Most of the 10 Opec members with quotas are fast maximizing output as the group attempts to push prices below US$50 and build up enough supply to meet an expected uptick in demand later this year.

Opec President Sheikh Ahmad al-Fahd al-Sabah said on Monday that the 10 members of the group bound by quotas are pumping 29.7 million barrels per day, over 2 million barrels above their target.

That would be the highest Opec output for 25 years, although some analysts were skeptical that production had yet risen to such high levels.

Analysts feared that persistently high oil prices could further derail economic growth, as the US economy was growing at its slowest pace in two years.

Factories in the United States and Europe slowed last month, worldwide surveys of manufacturers showed, signaling an oil-led softening in economic activity continued into the second quarter.

And the West's energy watchdog, the International Energy Agency (IEA) also asserted that high crude prices were hurting the world economy.

"We continue to think that the high oil price hurts the economy," Claude Mandil told reporters on the sidelines of the IEA's ministerial meeting on Monday.

"There's no serious reason for departing from the study last year that if oil prices increase US$10 per barrel, the next year the average GDP would drop 0.4 per cent. "

The US Federal Reserve nudged interest rates up on Tuesday for an eighth straight time, nodding to mounting inflation pressures.

The Federal Reserve said that the pace of spending has slowed due to high energy costs.

- REUTERS