Oil losses deepened to over $2 this morning after a bailout plan for struggling US auto makers stalled, raising prospects of a worsening economic slowdown in the world's largest oil consumer.
Senate negotiators failed late last night to reach a compromise deal to bail out the US auto industry and avert the threatened collapse of one or more car makers.
By 4.50am, crude for January delivery was down $2.60 at $45.38 a barrel, off a session low of $45.14.
London Brent crude was down $2.34 at $45.05.
"The failure of the auto bailout has broader implications for the already very weak US economy - these underlying concerns have not disappeared, and we expect oil prices to remain choppy over the next week," said David Moore, commodity strategist with Commonwealth Bank of Australia.
November US producer price inflation and retail sales, as well as a preliminary reading on December consumer confidence, could add to the economic gloom, and further weaken the dollar which edged down towards a 13-year low against the yen.
Crude has shed two-thirds of its value over the last five months, down about $100 from a record peak of $147.27 scaled last summer as the global financial crisis crimps consumer demand for fuel.
"We've not placed the lows in oil yet - the demand deterioration theme is still very much alive. I think we could go back to $40 levels as early as next week," said Jim Ritterbusch, president of Ritterbusch & Associates.
But it has still rebounded over 11 per cent this week and is heading for its biggest weekly gain in four years, having jumped by 10 per cent yesterday after the OPEC president called for more "severe" supply cuts at next week's meeting.
Traders are closely watching OPEC for more signals on what some analysts say could be a further 1-2 million barrels per day (bpd) output cut at the group's December 17th meeting.
Russia's President Dmitry Medvedev has also weighed in, saying the country was ready to work with OPEC on possible oil output cuts.
Japan's Nippon Oil said it expected OPEC to agree to cut 1.5-2.0 million bpd next week.
Reuters