Oil outlook

In the United States, the world's biggest economy and largest energy consumer, interest rate reductions usually stoke demand for oil and other commodities. But investors, increasingly worried and uncertain about the future path of oil prices, last week pulled their cash out of commodities due to US recession fears.

Washington, arguing that high oil prices are exacerbating economic woes, is urging OPEC to open the taps.  Yet oil's recent slide to below $90 a barrel from a record high of $100.09 earlier this month has relieved pressure on OPEC and made it unlikely that the cartel will agree on a production increase when it meets on Saturday.

Last week, US Energy Secretary Samuel Bodman repeated his plea for more oil from top exporter Saudi Arabia. UAE's oil minister Mohammed al-Hamli said the recent price drop was a "positive thing", and Venezuela, a price hawk in OPEC, said that in view of price volatility, it was not necessary to put more barrels on the market.

Yet Washington will point to the long-term picture. While oil prices are down almost 12% from the beginning of this year, they are still over 50% higher than a year ago, buttressed by tight inventory levels, OPEC output restraints and demand from investors seeking a possible hedge against inflation. While oil prices could slide into the low $80s if speculators liquidate their long positions, strong fundamentals will probably prevent funds from selling out completely, Goldman Sachs has said.