* U.S. crude futures drop 4.4 percent to low of $56.73
* International Energy Agency to cut energy demand forecasts
* OPEC says may cut oil output again if price falls further
(Updates prices, quotes)
By Christopher Johnson
LONDON, Nov 12 (Reuters) - Oil fell more than 4 percent to
below $57 a barrel on Wednesday, its lowest level for 20 months,
on expectations of weaker energy demand and as global stock
markets headed downwards.
The fall in oil prices prompted OPEC officials to say they
might decide to cut oil production further in an attempt to
adjust the balance between output and demand.
U.S. crude for December delivery <CLc1> hit a low of $56.73,
down $2.60 and its lowest point since March 20, 2007, before
rallying to $56.92 by 1550 GMT.
London Brent crude <LCOc1> shed $2.27 to $53.44 a barrel.
The bearish tone was set by the International Energy Agency,
which said a slowing world economy may force it to cut further
its forecast for oil demand growth when it releases its latest
monthly report on Thursday.
Turmoil in the world's financial markets has already led the
IEA, which advises many of the biggest economies on energy
policy, to cut its assumption for 2008 world oil demand growth
to the lowest rate in 15 years at just 440,000 barrels per day.
The head of the IEA said on Wednesday the agency had to take
into account the changing view of the global economy.
"We are likely to cut demand ... because the IMF changed its
projections on the world economy very dramatically," Nobuo
Tanaka told Reuters.
The IEA comment reinforced fears among traders and analysts
that the ferocity of the recession sweeping through many of the
world's biggest economies has not yet been fully factored into
projections for oil demand.
OPEC RESPONSE
Gloom over the state of the economy was underlined by a
lower opening on Wall Street, where the Dow Jones industrial
average slipped 1.95 percent or almost 170 points before
recovering to 8,578.79 by 1530 GMT. []
"Fear global recession is worsening day by day is driving
this market down," said Rob Laughlin, senior oil analyst at MF
Global. "Demand for oil is deteriorating week by week."
He said crude oil prices could well head down towards $50
before finding a floor, something that could spur the
Organization of the Petroleum Exporting Countries into further
trimming oil production.
OPEC President Chakib Khelil said on Wednesday the group
could cut oil supplies for a second time since October if prices
continued to fall and the world economy weakened further.
"If the prices continue their decline most probably OPEC
will have to take a further decision on a cut in supply,"
Khelil, who is also Algerian Energy and Mines Minister, told
Reuters in an interview in Algiers.
The remarks follow other calls from OPEC countries for
action to stem the oil price slide, which will reduce their
revenues from oil sales and make domestic spending programmes
harder to finance.
OPEC agreed last month to cut production by 1.5 million bpd
from Nov. 1 after the sharp fall in oil prices.
Oil demand forecasts are in the process of being adjusted in
the light of new economic data.
Credit Suisse said in a note the U.S. Department of Energy
would probably cut its one-year U.S. crude price forecast when
its publishes its Short Term Energy Outlook on Thursday.
Frederic Lasserre, an analyst at Societe Generale in Paris,
said stock markets rather than supply and demand fundamentals
would probably tell the oil market where the floor would be.
"The signal is going to come from equity markets," he said.
"There is an extremely high correlation between equities and
commodities."
U.S. weekly oil inventory data was expected to show an
800,000-barrel rise in crude stocks last week as demand
continues to slow, a Reuters poll of analysts found. []
The data will be released on Thursday, a day later than
usual due to the U.S. Veterans' Day holiday on Tuesday.
(Additional reporting by Barbara Lewis in London and Sambit
Mohanty in Singapore)
