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Crude Drops as Demand Worries Grow

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U.S. crude-oil futures fell Wednesday after a surge in the previous session, as traders looked to reports on the global oil market that suggest plentiful supplies and slumping demand growth.

Light, sweet crude oil for November delivery fell $1.14, or 1.2%, to settle at $91.25 a barrel on the New York Mercantile Exchange, after bouncing between gains and losses throughout the session. Brent crude oil on the ICE futures exchange fell 17 cents to settle at $114.33 a barrel.

Oil prices fell after data from the U.S. Energy Department and the Organization of Petroleum Exporting Countries suggested that oil-demand growth is slowing in the fourth quarter and into next year.

OPEC said early Wednesday oil supplies will remain comfortable in the coming year and cut forecast for 2012 oil-demand growth by 100,000 barrels a day to 800,000 barrels a day. The group warned that next year's demand faces "considerable uncertainties" that could lower its 2013 growth estimate by as much as 20%.

Additionally, the U.S. Energy Information Administration said the fourth quarter will see a recovery in oil production from non-OPEC countries as fuel consumption declines.

"The demand side looks ugly, and I think it only gets uglier," said Richard Soultanian, co-president of NUS Consulting, which manages companies' energy hedging. "Whoever is on the upside on the trade is the eternal optimist, but the fundamentals are becoming harder to ignore."

The gloomy outlooks followed a report from the International Monetary Fund earlier this week suggesting that the risk of a global recession has risen. Meanwhile, stock markets fell on Wednesday, dragging oil lower as traders look to equities as a gauge of the broader economy.

Oil prices have seen big swings in recent days, but have still remained close to the level of $90 a barrel since falling from near $100 a barrel in mid-September. Traders and analysts say that the supply and demand outlook points to lower prices, but few are willing to bet on big declines while conflicts simmer in the Middle East.

"Right now the market is undecided on the next move," said Phil Flynn, an energy analyst at Price Futures Group. "Weaker demand should mean lower prices, but in a world hell-bent on keeping the economy afloat with stimulus, and the rising geopolitical risk, supply and demand won't matter."

On Tuesday, prices rose more than $3 a barrel as Israeli Prime Minister Benjamin Netanyahu called parliamentary elections for early 2013, a move seen by some as a way to shore up his political base ahead of possible military action against Iran.

Concerns about Turkey and Syria continued to mount after Turkey's top military commander warned that the country would take tougher action if Syrian shells continued to land on Turkish territory. While Turkey and Syria aren't major oil producers, the possibility of expanded military activity highlights the threat that Syria's civil war could devolve into a regional conflict.

Turkey is also an important oil-transportation route, and fears have grown that the 400,000 barrels a day of Iraqi oil piped to the Turkish port of Ceyhan could become a target.

On Thursday, the EIA will release data on weekly U.S. oil stockpiles, delayed a day by the Columbus Day holiday on Monday. Analysts expect oil inventories will rise by 600,000 barrels.

Front-month November reformulated gasoline blendstock, or RBOB, settled 0.06 cent higher at $2.9593 a gallon. November heating oil settled 0.99 cent, or 0.3%, higher at $3.2131 a gallon.

Copyright (c) 2012 Dow Jones & Company, Inc.

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