* Global stocks fall to lowest level since September
* Bank of America lowers 2010 oil demand forecast
* Coming up: U.S. API oil inventory statistics
(Recasts, updates prices; changes dateline from LONDON)
By Robert Gibbons
NEW YORK, May 25 (Reuters) - U.S. oil futures fell sharply
on Tuesday as investors fled riskier assets to dollar safety on
growing concerns that the European debt crisis could worsen and
damage a fragile global economic recovery.
"A further bout of financial market and euro weakness has
pulled oil down sharply this morning, and there is background
concern about OPEC solidarity and escalating Korean tensions,"
said Lawrence Eagles, an analyst at J.P. Morgan.
The U.S. dollar index rose 0.9 percent as investors
diverted money from commodities into the greenback. <.DXY>
The euro fell to an 8-1/2-year low against the yen and
neared a four-year low versus the dollar on continued fears the
euro-zone sovereign debt crisis is spreading.
U.S. crude <CLc1> was down $1.80 at $68.41 a barrel at
11:53 a.m. EDT (1553 GMT).
Market sources noted that crude, down more than $3 earlier,
pared losses after the U.S. consumer confidence index hit a
two-year high in May. []
ICE Brent crude <LCOc1> was down $1.87 at $69.30 a barrel.
"It's risk aversion, falling stock markets and a stronger
dollar. People are worried the euro zone crisis will spread and
derail the global economic recovery," said Carsten Fritsch, an
analyst at Commerzbank.
Spain's central bank took over savings bank CajaSur on
Saturday, following the failure of its planned merger with
another regional lender, and this has weighed on the euro this
week. []
News that euro zone new industrial orders rose in March at
their fastest rate in 10 years did little to improve sentiment
in the oil market. []
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Reuters Insider analysis points to higher gold, lower oil:
http://link.reuters.com/suf36k
For a graphic on performance of oil and other commodities:
http://graphics.thomsonreuters.com/10/CMD_PRFG0510.html
For a graphic on correlation between oil and the euro:
http://graphics.thomsonreuters.com/gfx/CT_20102505130654.jpg
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World stocks fell to their lowest level since September
2009 on Tuesday amid growing tension between North and South
Korea. Equities are seen as an indicator of future energy
demand growth. <.MIWD00000PUS>
U.S. stocks tumbled about 2 percent, tracking a sell-off in
global equities, on worries over Europe's banking sector and as
short-term funding costs soared. []
Bank of America Merrill Lynch <BAC.N> on Tuesday cut its
oil demand growth forecasts for 2010 to 1.5 million barrels per
day from 2 million bpd due to anticipate slower global economic
growth in the second half of 2010. []
SUPPLY COMFORT
Oil markets remain well supplied, with the Organization of
the Petroleum Exporting Countries pumping about 2 million
barrels per day above agreed output targets.
While oil is below the $70-$80 range many in OPEC have said
they prefer, OPEC officials have stopped short of calling for
any steps to prop up prices. OPEC has not made plans for an
emergency meeting, the oil ministers for Kuwait and the United
Arab Emirates said on Monday. []
A preliminary Reuters survey on Monday showed analysts were
divided over the direction of U.S. oil inventories last week.
The poll of six analysts called for an average drawdown of
100,000 barrels. []
Distillate stocks, including heating oil and diesel, were
forecast up 300,000 barrels on average.
Crude stocks at the delivery hub for U.S. futures contracts
in Cushing, Oklahoma, are at a record high.
The tensions in east Asia could further weigh on oil prices
after North Korean leader Kim Jong-il reportedly told his
military he might have to go to war if attacked after the
sinking of a South Korean ship. []
"The impact on oil prices would likely be bearish, since in
this area of the world demand would be impacted far more than
supply," said Edward Meir at MF Global.
South Korea is the world's fifth-largest crude oil buyer.
(Additional reporting by Emma Farge in London and Alejandro
Barbajosa in Singapore; Editing by Walter Bagley)
