* OPEC near consensus on 2 million barrels a day cut
* U.S. Fed cuts target for overnight interest rates
* Economic troubles dim demand outlook
(Updates with settlement prices, fresh quotes, wider market
reaction to Fed move, adds byline)
By Matthew Robinson and Richard Valdmanis
NEW YORK, Dec 16 (Reuters) - Oil fell 2 percent on Tuesday
as worries about shrinking global energy demand countered a
U.S. Federal Reserve interest rate cut and expectations OPEC
will reduce supplies further.
Oil ministers from the Organization of the Petroleum
Exporting Countries were near a consensus to cut output by 2
million barrels per day (bpd), the biggest reduction ever by
the producer group, ahead of a meeting in Algeria on Wednesday.
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Russian officials said the top non-OPEC producer could
reduce exports by 320,000 bpd to give greater punch to the
cartel's efforts to balance oil markets and prop up prices.
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U.S. crude <CLc1> settled down 91 cents at $43.60 a
barrel, while London Brent crude <LCOc1> fell 4 cents to settle
at $44.56 a barrel.
"All the news is supportive, OPEC and the weak dollar, yet
oil coming back off tells you the bears are still in control,"
said Tom Bentz, analyst at BNP Paribas Commodity Futures Inc.
The U.S. Federal Reserve took a radical step to revive the
moribund economy, slashing its key interest rate to zero to
0.25 percent, shortly after plummeting consumer prices and
record-low housing starts pointed to a prolonged recession.
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The U.S. dollar tumbled while U.S. stocks rallied after the
decision. []
"The fact that the Fed cut rates by 75 basis points rather
than the consensus of 50 points seems to indicate that perhaps
the economy needs major, major overhaul that is bigger than
expected earlier," said Nauman Barakat, senior vice president
at Macquarie Futures USA.
"That translates into lower demand for crude oil."
Oil prices are drifting just above a four-year trough of
$40.50 a barrel hit on Dec. 5 and remain down more than $100
from the July record above $147 a barrel as a financial crisis
hits fuel consumption.
The market slump has raised alarm bells for OPEC nations
and other big producer countries that depend on revenues from
energy exports.
The producer group expects global demand for its crude oil
to fall by an average of 1.4 million bpd next year due to the
downturn in the world economy. The drop in demand will be even
more dramatic in the first quarter.
"In the first quarter of 2009, the demand for OPEC crude is
expected to see a sharp drop of 2.3 million bpd from the same
quarter in the previous year," it said in its latest monthly
report on the oil market. []
OPEC already has agreed to cut output by 2 million barrels
a day at two previous meetings, but demand has fallen faster
and stocks of oil are building up. OPEC said 45 million barrels
of crude oil are currently being stored at sea on oil tankers.
"OPEC won't face a bigger decision than this for some time
to come," Bank of Ireland analyst Paul Harris said.
"If they don't put a floor under prices with a cut of some
significance then it could have huge ramifications for the
future of the oil market," he added.
Crude oil stocks in top energy consumer the United States
are running near the top of the five-year range and forecasters
expect data to show they rose by another 300,000 barrels last
week, according to a Reuters' poll ahead of the U.S. fuel
inventory report due on Wednesday. []
(Reporting by Richard Valdmanis, Matthew Robinson and Robert
Gibbons in New York, Ikuko Kao and Jane Merriman in London and
Annika Breidthardt in Singapore; Editing by David Gregorio)
