Oil falls to $112 on global demand worries

Enlarge Photo
(Reuters)

NEW YORK (Reuters) - Oil dropped more than $2 to $112 a barrel on Friday on growing concerns about demand in industrialized nations and the stronger dollar.

U.S. crude fell $2.67 to $112.34 a barrel by 2:10 p.m. EDT, after dipping down to $111.34 a barrel, the lowest level since May 2. London Brent lost $1.89 to fall to $111.79 a barrel.

Crude has fallen sharply since reaching an all-time high of $147.27 a barrel set on July 11 as growing global economic problems and high fuel prices cut demand in top consumer the United States as well as Europe.

"We might get to $110. How quickly we get there would depend on the demand outlook," said Simon Wardell, oil analyst at Global Insight. "If next week's U.S. inventory data shows an increase in stocks, we could go lower."

Producer group OPEC cut its 2008 demand forecast on Friday and added ample supplies were paving the way to building inventories.

OPEC output rose 145,000 barrels per day in July to 32.8 million bpd, the International Energy Agency said this week.

A Reuters poll of analysts, banks and industry groups shows demand growth should rise next year, however, as demand from emerging economies like China outpaces losses from industrialized nations.

The euro hit a six-month low against the dollar on Friday following further proof that the U.S. economic slowdown is spreading.

The economy of the 15-nation euro zone contracted 0.2 percent in the second quarter, data showed on Thursday.

Surging demand in China, India and other emerging economies sent commodities on a six-year rally that sent oil prices up seven-fold at their peak. Earlier this year, a rush of cash from investors seeking to hedge against inflation and the weak dollar also pushed up crude prices.

Traders are also eyeing fighting between Russia and Georgia, a key supply route from the Caspian to Europe.

U.S. President George W. Bush accused Russia on Friday of "bullying" Georgia, and key European ally Germany criticized Moscow for going too far with its invasion of its small Caucasus neighbor

(Reporting by Matthew Robinson, Gene Ramos, and Robert Gibbons in New York and Golnar Motevalli in London; Editing by Christian Wiessner)