Oil prices on Wednesday fell nearly $2, unable to sustain a brief bounce that followed a global round of emergency interest rate cuts.
US light crude for November delivery was down $1.86 cents at $88.20 a barrel by 1305 GMT. London Brent crude fell by $1.02 to $83.64.
'Looks like the rate cuts caused the bounce after important support at $86 held,' said Tom Bentz, analyst at BNP Paribas Commodity Futures Inc.
'But oil markets are backing off highs as energy demand concerns remain.' Early in the session US crude had fallen by more than $4 to $86.05, its lowest since December 6, 2007, after British government action to prop up its banks failed to reassure financial markets and oil traders predicted oil demand would fall.
Financial markets rallied collectively after the US-led rates cuts. The US Federal Reserve said it was cutting its key rate by 50 basis points to 1.5 percent.
Other banks cutting interest rates also included China, which reduced its key rate by 27 basis points. Surging oil demand in China and elsewhere in Asia played a large part in oil's sustained rally that culminated in a record of $147.27 in July this year.
Many analysts had predicted fuel demand in China would remain strong even if it plummeted in the United States, the world's biggest energy consumer, but concern has mounted that the Chinese economy will not escape global economic turmoil.
Later on Wednesday, attention will turn to oil inventory data from the US government's Energy Information Agency (EIA), expected to be released at 1435 GMT. An increase in inventories could put further pressure on crude prices.
Crude stocks were expected to have risen for the second week in a row last week as imports continued to rebound after storm disruptions, a Reuters poll of 11 analysts showed. Members of the Organization of the Petroleum Exporting Countries (Opec) have said they have become uneasy about oil's sharp price drop from the record highs hit earlier this year.
Opec was unlikely to cut output at its December meeting unless the price for crude produced by its members fell below $80 a barrel, an Opec source said.
The price for Opec's basket of crude stood just above that threshold on Tuesday, at $80.04 a barrel.
"The price is still reasonable," the source told Reuters. "If it stays where it is then Opec will stick to the output levels decided at the last meeting. I think if it falls below $80, Opec will do more."
Even if the price fell through the $80 mark, the Organization of the Petroleum Exporting Countries (Opec) was unlikely to take action before its next scheduled meeting in December, the source said.
The global financial crisis and slowing demand growth were a concern, but the lower oil price should bolster consumption, the source added. -Reuters