Oil falls to near $77 amid uncertainty over demand

Oil prices slipped towards $77 a barrel on Thursday as a sharp slide in stock markets raised worries about the pace of recovery in the global economy and demand for crude.

By early afternoon in Europe, benchmark crude for January delivery was down 60 cents to $77.36 in electronic trading on the New York Mercantile Exchange. The contract rose $1.94 to settle at $77.96 on Wednesday.

Crude prices surged the previous day as the dollar sank to a 14-year low against the yen. On days the dollar weakens, oil usually rises as it become cheaper for international investors.

Stock markets fell heavily in both Europe and Asia on Thursday on the news that Dubai World, a government investment company, is having trouble paying back debt.

Amid such volatile investor sentiment, a mild winter and mixed signs about the strength of global economic recovery, doubts remain over demand for crude.

"It should be noted that fundamentals remain weak, as current above-average temperatures raise concerns for oil demand levels in the U.S.," Sucden Financial Research said in a report.

Trading is closed Thursday in the U.S. for the Thanksgiving holiday.

After zooming to $147 a barrel in July 2008 and crashing to $32 in December, oil prices have meandered in the high $70s for more than a month as investors weigh a slow U.S. recovery against surging Asian demand.

The Energy Information Administration said Wednesday that crude supplies rose 1.0 million barrels while analysts had expected a rise of 1.4 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Crude inventories are up 17 million barrels from a year ago.

Demand from China, however, has grown in the last two months at its fastest pace in five years as analysts forecast 10 percent economic growth in the fourth quarter.

"The recent data mark a significant acceleration in Chinese demand," Barclays Capital said in a report. It predicts oil will average $85 a barrel next year and $137 in 2015.

In other Nymex trading, heating oil fell 0.90 cents to $1.9811 a gallon. Gasoline for December delivery dropped 0.20 cents to $1.9771 a gallon. Natural gas for January delivery slid 0.32 cents to $5.131 per 1,000 cubic feet.

In London, Brent crude for January delivery was down 23 cents to $78.21 on the ICE Futures exchange.

Associated Press writer Alex Kennedy in Singapore contributed to this report.