PTI

Singapore, Dec 2: Oil prices fell to near a 3-year low below $49 a barrel on Tuesday in Asia, as more bleak US economic news and plunging stocks markets darkened investor expectations for crude demand.

Light, sweet crude for January delivery was down 57 cents to $48.57 a barrel in electronic trading on the New York Mercantile Exchange by midmorning in Singapore.

The contract plummeted overnight $5.15 to settle at $49.28 after more signs of a weakening US economy sent the Dow Jones industrial average down 7.7%. Prices fell to an intraday low of $48.25 last month, the lowest since 2005.

Asian markets also opened down, with Japan's benchmark Nikkei 225 index falling 4.9%, the Korea Composite Stock Price Index sliding 3.6% and Australia's benchmark index dropping 2.8%.

Oil investors have looked to equity markets as a barometer of economic growth sentiment.

"The basic story remains the same; consumption worries continue to depress the oil market," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. "Recent data out of the US and other countries backs up the view that consumption is weakening."

The National Bureau of Economic Research reported that the US economy has been in a recession since December 2007 and the current downturn will last until the middle of 2009, the most severe slump since the 1981-82 recession.

What began as a financial crisis in the sub-prime mortgage sector has spread throughout the US economy, including industrial production. The Institute for Supply Management said its gauge of manufacturing activity fell more than expected to 36.2 in November. A reading below 50 indicates the sector is contracting.

The Commerce Department reported that construction spending dropped by 1.2% in October, much bigger than the 0.9% decline many analysts expected.

Meanwhile, expectations of another production cut by the Organization of Petroleum Exporting Countries has failed to spark a rally in prices.

OPEC Secretary-General Abdullah El-Badri said the group would likely reduce output quotas by between 1m and 1.5m barrels at a meeting on Dec. 17 in Algeria, according to a report on Iranian state television Monday.

OPEC, which accounts for about 40 percent of global supply, cut output by 1.5m barrels a day in October, bringing total cuts to around 2m barrels a day this year.

"We think by next year OPEC will be somewhat successful in tightening supply and underpinning prices,'' Moore said. "You have to wonder where the oil price would be now without the OPEC cuts."

Moore said he expects an average oil price of $74 a barrel for 2009.

In other Nymex trading, gasoline futures fell 0.64 cent to $1.11 a gallon. Heating oil was steady at $1.62 a gallon while natural gas for January delivery slid 6.6 cents to $6.54 per 1,000 cubic feet.

In London, January Brent crude fell 85 cents to $47.56 on the ICE Futures exchange.