Oil falls below $56 as Japan slips into recession

SINGAPORE – Oil prices fell below $56 a barrel Monday in Asia as news that Japan fell into recession highlighted investor fears of a global economic slowdown that will hurt crude demand.

Iran, OPEC's number two oil producer, favours a cut in crude production of 1.0 to 1.5 million barrels per day when the oil cartel meets in Cairo later this month, state television has reported.

Light, sweet crude for December delivery was down $1.11 to $55.93 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract fell $1.20 Friday to settle at $57.04.

Japan, the world's second-largest economy, said Monday it slid into a recession for the first time since 2001 after gross domestic product contracted at an annual pace of 0.4 percent in the third quarter after a shrinking 3.7 percent in the second quarter. Japan now joins the 15-nation euro-zone in a recession, defined as two straight quarters of GDP contraction.

"Markets are very worried about the international economic outlook, about oil consumption," said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. "As data is released in the U.S., Europe and other countries, investors get a reminder of the economic problems in the developed world."

Oil prices have tumbled about 62 percent since peaking at nearly $150 a barrel in mid-July.

Comments Sunday from OPEC President Chakib Khelil, downplaying the possibility that the group could cut production at a meeting this month, also weighed on prices.

On Saturday, Iran called on the Organization of Petroleum Exporting Countries to reduce output quotas by up to 1.5 million barrels a day a meeting later this month. But Khelil said OPEC, which accounts for about 40 percent of world crude supply, hasn't yet fully enforced previous quotas and the group needs more data before it decides to cut production.

Iran's call for more cuts is a "wish," Khelil said. OPEC, which cut quotas 1.5 million barrels a day last month, plans to meet on Dec. 17.

"The short-term trend for oil prices is possibly still to the downside," Moore said. "But as the OPEC cuts start to take surplus out of the market, this tightening will eventually give support to the oil price."

A stronger U.S. dollar also helped push oil prices down. Investors often buy oil futures as a hedge against inflation and a weaker dollar and sell when the dollar gains.

The euro fell to $1.2561 Monday from 1.2602 on Friday while the dollar was steady at 97.22 yen.

"The firm U.S. dollar is certainly a factor in why the oil price is lower," Moore said.

In other Nymex trading, gasoline futures fell 1.54 cents to $1.22 a gallon. Heating oil dropped 1.83 cents to $1.81 a gallon while natural gas for December delivery rose 6.38 cents to fetch $6.38 per 1,000 cubic feet.

In London, December Brent crude fell 52 cents to $53.72 on the ICE Futures exchange.