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Oil retreats below $50 after OPEC cuts demand forecasts

LONDON - Oil retreated from session highs to below $50 a barrel on Wednesday, after OPEC’s latest monthly oil market report predicted a faster-than-expected drop in world oil demand.

By 1214 GMT, U.S. crude for May delivery was up 8 cents at $49.49 a barrel, off a session high of $50.79.

ICE Brent crude was 32 cents lower at $51.64.

The Organization of the Petroleum Exporting Countries said world demand would fall by 1.37 million barrels per day in 2009, more than its previous forecast for a fall of 1.01 million bpd.

“In the coming months, the market is expected to remain under pressure from uncertainties in the economic outlook, demand deterioration and the substantial supply overhang,” OPEC said.

The global recession has hit oil demand which has been contracting at a rate not seen since the early 1980s.

Both the International Energy Agency and the U.S. government agency EIA have also just reduced their global demand forecasts.

In its monthly outlook released on Tuesday, the EIA cut its 2009 world oil demand forecast by 180,000 barrels per day to just over 84 million bpd.

Oil has fallen almost $100 from a record of more than $147 a barrel in July last year. Prices have hovered in a $47-$54-range for the past four weeks, having fallen as low as $32.40 in December.

OPEC has cut output by 4.2 million barrels per day since last September to try to prop up prices.

Stocks still rising

“We suspect in the short-term, direction will be provided by the EIA inventory numbers out later today,” said Edward Meir of futures broker MF Global.

Industry group American Petroleum Institute (API) said on Tuesday U.S. domestic crude stocks had risen by 6.5 million barrels last week, much higher than a 1.9 million-barrel increase forecast in a Reuters poll.

The U.S. EIA report, due at 1430 GMT, is likely to show U.S. crude oil supplies rose for the sixth consecutive week, probably to the highest in almost 19 years, a Reuters poll of analysts showed.

“However, we still expect the US stock market to be the intermediate price driver for most commodity complexes over the next few weeks,” Meir said in a research note.

A rally in equity markets this month on hopes the world economic outlook might be brightening has helped boost oil, despite its weak supply/demand fundmamentals.

European equity markets edged lower on Wednesday following on from heavy losses in the United States markets on Tuesday.

Royal Dutch Shell’s Nigerian joint venture has declared force majeure on Bonny Light crude oil exports in April and May after a fire caused a production shut-down.