* Oil down $2 on U.S. crude stocks rise
* Global economic weakness threatens fuel demand
* U.S. Fed leads round of interest rate cuts
* OPEC considers meeting in November as prices slide
(Updates prices)
NEW YORK, Oct 8 (Reuters) - Oil prices fell on Wednesday
as concerns about the impact of the global financial crisis on
demand and rising U.S. inventories outweighed a move by central
banks to cut interest rates.
U.S. crude <CLc1> fell $2.36 to $87.70 a barrel by 1:35
p.m. EDT (1735 GMT), after hitting a fresh 10-month low
earlier. London Brent crude <LCOc1> fell by $1.70 to $82.96 a
barrel.
"We've fallen to a new low for crude prices this year on
the latest inventory report and amid the raging credit crisis,"
said Phil Flynn of Alaron Trading in Chicago.
"In the past, whenever there was a credit crisis, investors
bought oil as a hedge. But that has changed now because
everybody is realizing that the current credit crisis is
weakening economies and that's a big problem that will hurt
demand."
U.S. crude stocks rose 8.1 million barrels as inventories
recovered from storm disruptions, according to the U.S. Energy
Information Administration's weekly report. The rise was much
more than the 2.3-million-barrel build forecast by analysts in
a Reuters poll.
The EIA report also showed gasoline stocks increased 7.2
million barrels, compared with forecasts for a
1.1-million-barrel build, while total demand for products over
the past four weeks dropped 8.6 percent compared with a year
ago.
Earlier on Wednesday, U.S. crude fell to $86.05, its lowest
level since Dec. 6, 2007, when British government action to
prop up its banks failed to reassure financial markets and oil
traders anticipated oil demand would fall.
After the U.S. Federal Reserve led a coordinated interest
rate cut to shore up the global economy and financial markets
rallied, oil briefly rose.
But support from the rate cut was eclipsed by persisting
worries about demand, which has fallen in the United States and
other developed economies due to the financial market turmoil
and high fuel costs.
"The rate cut is supportive for oil, obviously. The
question is, is it going to be enough to inspire confidence?
You can cut rates to the bone, but if nobody's willing to lend
you money, it doesn't really matter," Flynn said.
The U.S. Federal Reserve said it was cutting its key
interest rate by half a percentage point to 1.5 percent. Other
banks cutting interest rates included China, which reduced its
key rate by 0.27 percentage point.
Surging oil demand in China and elsewhere in Asia played a
large part in oil's sustained rally that culminated in a record
high price of $147.27 a barrel in July.
Many analysts had predicted fuel demand in China would
remain strong, even if it plummeted in the United States, the
world's biggest energy consumer, but concern has mounted that
the Chinese economy will not escape global economic turmoil.
Members of the Organization of the Petroleum Exporting
Countries were consulting on whether to hold an emergency
meeting on Nov. 18, ahead of their next scheduled meeting in
December, to discuss the impact of the global financial crisis
on the oil market, Libya's top oil official said on Wednesday.
[]
Some OPEC members have said oil production rate cuts may be
needed if oil prices continue to drop.
Nigeria's oil minister on Wednesday was among the latest to
say OPEC might need to reduce output.
"There may be a need to intervene to balance the market, if
the price slide seemingly predicted on (lower) demand and
over-supply continues," Odein Ajumogobia told Reuters.
[]
(Reporting Rebekah Kebede, Joe Brock and David Sheppard in
London; Additional reporting by Gene Ramos; Editing by Walter
Bagley)
