Oil drops 7%

OIL fell more than 7 per cent to US$42 (S$64) per barrel on Wednesday on further signs of weak global demand and rising inventories in top consumer the United States.

US government data showed crude stocks in the world's largest energy consumer rose 700,000 barrels last week, while overall products demand over the past four weeks dropped 2.1 per cent against last year's levels.

But gasoline demand rose further as lower pump prices encouraged more driving. Gasoline stocks tumbled 3 million barrels. Distillate demand fell 6.1 per cent over the past four weeks from last year, with stocks off 2.1 million barrels last week.

"It looks like there's a genuine rebound in gasoline demand against a backdrop of extremely weak demand overall," said Antoine Halff, First Vice President of Research at Newedge Group in New York.

US crude traded down US$3.48 to US$42.23 a barrel by 2.23pm EDT, while London Brent crude fell US$2.39 to US$41.57 a barrel.

The US inventory report came after No. 2 consumer China showed a surprise 15 per cent drop in imports in February, as oil companies scaled back purchases due to high inventories and low demand. The fall came after an 8 per cent drop in January.

German manufacturing orders fell 8 per cent in January alone, data on Wednesday showed, indicating a deeper than previously expected recession in Europe's largest economy.

The global economic slowdown has weakened crude demand, sending oil prices off peaks over US$147 a barrel hit in July and prompting the Organization of the Petroleum Exporting Countries to agree to a series of deep output cuts last year.

The producer group next meets on March 15, with some members calling for another output cut and others insisting greater compliance with current agreements is needed.

US Energy Secretary Steven Chu said he will speak to OPEC ministers before their March 15 meeting and tell them that higher crude oil prices will slow the recovery of the world economy. — REUTERS