Oil dips closer to $70 US ahead of OPEC meeting

Oil prices edged closer to $70 US a barrel in trading Tuesday, a level almost unthinkable five short months ago, as fears of a global recession outweighed the predictions of an OPEC production cut later this week.

Crude oil for November delivery fell $3.36 to $70.89 a barrel in trading on New York's Mercantile Exchange. Oil had been up as high as $75.69 but lost those early gains as the American dollar rose compared to the European euro.

"The general trend is still of uncertainty," analyst Olivier Jacob of Petromatrix in Switzerland told Associated Press.

Traders have been watching the world economy with increasing trepidation, fearing growth that will be "below that of its longer-run potential for several quarters," as U.S. Federal Reserve Chair Ben Bernanke put it when he spoken on Capitol Hill on Monday.

The economic prospects of the United States have worsened, as has the global financial crisis. Thus, crude buyers now believe demand for the black gold will fall even as western economies head into the oil-intensive winter.

Already in October, the Organization of Petroleum Exporting Countries cut its outlook for oil demand by 240,000 barrels for 2008 and a further 440,000 in 2009.

Now, OPEC expects oil demand in the range of 86.5 million barrels a day in 2008, rising to 87.2 million barrels next year.

On Friday, OPEC plans to hold an emergency meeting at which many experts expect the influential oil organization to cut production by one million barrels a day.

OPEC, however, suffers from chronic cheating by its members who ignore the production quotas in favour of pumping more oil. In addition, some countries, such as Nigeria, face enormous domestic pressures and need to keep selling the crude as a way of getting cash into their treasuries.

Dollar drag

The rising American dollar is another factor weighing down oil prices.

The euro was down to $1.3240 versus the U.S. currency while the British pound bought $1.7069 compared with $1.7121 late Monday in New York.

A rising dollar tends to suck money out of commodities and into the U.S. currency as a hedge against a worsening economy.

Heads Above Water-Barely

OPEC meeting will decide to keep oil production steady: Saudi Arabia

Oil prices plummet below $80 US for 1st time in a year