U.S. government says world oil demand will shrink this year and next… OPEC expected to agree output cut next week…

Oil fell below $43 on Tuesday after the U.S. government predicted world oil consumption would shrink this year and next, marking the longest demand contraction in three decades.

U.S. crude was down 84 cents at $42.87 a barrel at 1636 GMT, off a session low of $42.44.

London Brent crude fell $1.09 to $42.33.

The U.S. Energy Information Administration said in a report it expected global oil demand to fall by 50,000 barrels per day (bpd) in 2008 and 450,000 bpd in 2009.

This would mark the first time since the 1970s that world consumption would decline in two consecutive years.

“The EIA forecast is overly optimistic. I expect a significant contraction in demand, given the current state of the global economy,” said Tom Knight a trader at Truman Arnold.

The outlook for global oil consumption is very much on the minds of ministers from the Organization of the Petroleum Exporting Countries, which meets on Dec. 17 in Algeria.

OPEC is expected to reduce overall production by a minimum of one million barrels per day (bpd).

“Oil is on a count-down to OPEC now and everyone is expecting them to come up with something big — probably a cut of 1-1.5 million bpd,” said Rob Laughlin, senior oil analyst at brokers MF Global in London.

“If OPEC doesn’t make a big cut, this market is in trouble.”

Joe Brock
LONDON, Dec 9 (Reuters)