Oil Slips As U.S. Fuel Demand Shrinks

Oil fell on Monday as a deepening U.S. recession shrank demand in the world's top fuel burner and evidence mounted of a global downturn.

Growing concern over poor economic data also took a toll on world equity markets and sent the euro to a two-month trough against the dollar. U.S. consumers cut spending for a sixth straight month in December and their incomes shrank.

U.S. light crude for March delivery <CLc1> fell 58 cents to $41.10 a barrel by 1645 GMT, after gaining as much as 63 cents in early trade. London Brent crude <LCOc1> shed $1.08 cents to $44.80 a barrel.

"The economic data and consumer spending being down just keep the demand problem in focus," said Dominick Chirichella of Energy Management Institute.

A report from the U.S. Energy Information Administration on Friday showed U.S. oil demand in November was 305,000 barrels per day (bpd) less than previously estimated and was down 1.577 million bpd from a year earlier.

Slowing consumption has swollen fuel stocks and helped knock more than $100 a barrel off the price of crude since its July peak near $150.

Some analysts see oil holding above $40 in the near term.

"We'd probably need to see a big crude stock-build again in the U.S. this week to move us below $40," said Andrey Kryuchenkov, Vice President of Commodities at VTB Capital in London.

Grim economic news also dominated Asia and Europe, where Euro zone manufacturing shrank and factory prices tumbled at their fastest rate in at least six years. [ID:nSP388913]

Sales of new cars dropped further in Spain and France and in South Korea, January exports contracted at a record pace.

Price support offered by refinery strike action on both sides of the Atlantic also began to fall away as energy supplies were not disrupted.

"The likelihood of a (U.S.) refinery strike is a lot less than on Friday," said Energy Management Institute's Chirichella.

Talks between United Steelworkers negotiators and oil company representatives were "making good progress", the union said, after resuming contract talks on Sunday and averting a strike that would have slashed domestic fuel production. [ID:nN02450168]

In Britain, energy supply was not impacted by workers at nuclear, oil and gas plants who were protesting against the use of foreign workers. [ID:nnL2715973]

Signs from OPEC that it might remove more supply on top of record output curbs and an abrupt end to a cease-fire in Nigeria's oil-rich Niger delta also supported prices.

OPEC Secretary General Abdullah al-Badri told Reuters on Friday the producer group was willing to cut output further at its meeting in March, adding to agreed cuts of 4.2 million barrels per day since September to prop up prices.