* U.S. economic recovery key to boosting oil demand
* Stronger dollar and Spain fears weigh on oil
* Oil price correction expected in coming weeks
* Coming up: U.S. EIA oil inventory report; 1530 GMT
(Adds Spain, new comment, updates prices)
By Una Galani
LONDON, Dec 15 (Reuters) - Oil prices fell below $88 a
barrel on Wednesday on fears over the health of the global
economy and following U.S. inventory data suggesting weak demand
in the world's largest oil consumer.
Spain on Wednesday faced a posssible downgrade of its debt
by Moody's, refocusing attention on risks the eurozone debt
crisis could spread, a day after the Federal Reserve dampened
expectations of rapid U.S. economic recovery. []
"The Fed outlook was less optimistic than some might have
expected after recent positive economic data and the American
Petroleum Institute (API) inventory report was quite bearish for
prices," said Carsten Fritsch, an analyst at Commerzbank.
Inventory data from the API released late on Tuesday showed
U.S. crude stocks fell 1.4 million barrels in the week to Dec.
10, less than the 2.5 million forecast in a Reuters survey of
analysts []. Distillate supplies rose 2 million barrels.
U.S. light crude oil futures for January <CLc1> shed more
than $1 to a session low of $87.21 before paring losses to
$87.43 a barrel by 1316 GMT. ICE Brent <LCOc1> dropped 33 cents
to $90.88.
The Fed on Tuesday offered only a cautious nod to the
economy's improving prospects as it put a spotlight on high
unemployment and reaffirmed its commitment to buy $600 billion
in bonds. []
The sober assessment stood in contrast to forecasts on Wall
Street, where analysts have been bullishly revising economic
projections based on a slew of stronger-than-expected data and a
new government tax cut plan.
Thorbjorn Bak Jensen, an oil analyst at Global Risk
Management, said that once countries were put on a ratings watch
a downgrade usually followed, referring to ratings agency
Moody's warning it may cut Spain's rating. []
READ ACROSS
The U.S. Energy Information Administration (EIA) report is
due at 1530 GMT. Readings from the United States on consumer
price inflation and manufacturing statistics will also be
released on Wednesday.
Fritsch at Commerzbank said the market would be waiting to
see whether the EIA figures confirmed the trend shown by the
industry data from the API.
Crude prices were also pressured by the dollar <.DXY>, which
rose 0.23 percent against a basket of major currencies.
A stronger dollar can depress dollar-denominated oil prices
as it makes fuel more expensive to holders of other currencies.
Strength in the greenback can also push investment into
foreign exchange markets and out of from commodities.
In a note to clients, MF Global said the slew of data had
not changed its outlook for the energy markets, which it
continued to expect would experience a sharp correction over the
next few weeks.
Bearish sentiment has been limited by very cold weather in
the United States and Europe, which is expected to continue
through the week, and has increased heating fuel demand.
(Additional reporting by Randy Fabi in Singapore; editing by
Christopher Johnson and Keiron Henderson)
