Oil touched a 20-month low on Wednesday, within striking distance of the psychologically key $50 mark, as top exporter Saudi Arabia saw no reason to worry over the market's 18 percent slide so far this month.
U.S. crude futures tumbled to an intraday low of $50.28 a barrel, the lowest level since May 25, 2005. By 1511 GMT, the February contract traded 28 cents lower at $50.93.
[Editor's Note: FIR predicts oil prices could fall to $40 a barrel in the next 12 months. Get a free copy of "Four Ways to Profit from the Oil Bust of 2007" and prepare yourself today.]
London Brent eased five cents to $51.57.
Prices have hit fresh 20-month lows for two consecutive sessions after Saudi Arabia said OPEC output cuts were working well and an emergency meeting of the producer group was unnecessary.
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"There is no need to worry because the market is in a very healthy condition," the kingdom's oil minister Ali al-Naimi told reporters on Wednesday.
The market has plunged more than 35 percent from a record peak of $78.40 a barrel in July 2006 in the wake of escalating Middle East tensions.
The market found some support from investors' reluctance to bet that prices would fall much below the $50 support level.
"The market is quite nervous about taking positions after seeing so many days of sharp drops in oil prices. Many are getting out of the market and cutting their losses," said Tetsu Emori, an analyst at Mitsui Bussan Futures in Tokyo.
"The market is also a little reluctant to take a short position because they are not sure if prices would actually fall below the psychologically important $50 line," he added.
$50 TEST
But many technical analysts said it was not a question of if, but when the market would test the $50 support level.
"Most of our charts suggest the prices will continue heading south, perhaps punctuated by the odd bounce," said Man Financial.
"In crude's case, the $50 level should not impede any selling either, as it does not constitute major chart support, but rather, is more of a psychological price point at this stage."
As colder weather reached the region, heating demand in the U.S. Northeast was forecast to rise above average early in the week, with Wednesday demand well above usual, private forecaster DTN Meteorlogix said.
But the coming of the cold was a little too late to radically change the recent fundamentals, analysts said.
The International Monetary Fund has revised down its 2007 estimate for global oil prices to $52.00 a barrel from a September forecast of $75.50, the fund's Managing Director Rodrigo Rato told Reuters on Tuesday.
Analysts polled by Reuters expect U.S. weekly oil statistics to show a build of 200,000 barrels in crude stocks last week, which would be the first rise in eight weeks, with imports rebounding from a steep drop the previous week.
Distillate stocks were projected to have risen 1.5 million barrels, with gasoline seen rising 2.3 million barrels.
The data will be released on Thursday, a day later than usual due to a U.S. holiday on Monday.
Editor's note:
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