UPDATE 4-Oil falls further, focus on U.S. demand

                                
 * Oil down ahead of U.S. government oil data
                                
 * Weak U.S. economic outlook stirs demand growth fears
                                
 
                                
 (Updates prices)
                                
 LONDON, July 16 (Reuters) - Oil dropped further on Wednesday
after a sharp fall the previous session on expectations that a
faltering economy in top energy consumer the United States would
hit demand growth.
                                
 Prices had plunged more than $6 on Tuesday, the steepest
drop in dollar terms in 17 years.
                                
 U.S. crude <CLc1> was $2.21 down at $136.53 a barrel by 1137
GMT.
                                
 On Tuesday the market saw its biggest one-day fall since
1991, when prices tumbled after the U.S. began bombing Iraq in
the first Gulf War.
                                
 London Brent crude <LCOc1> was $2.27 down at $136.48 a
barrel.
                                
 "I think what happened yesterday, especially with the dollar
weakening, suggests that the market is taking a little more
focus on the real fundamentals," said Mark Pervan, head of
commodity research at ANZ.
                                
 U.S. Federal Reserve Chairman Ben Bernanke said the weak
housing market and high energy and food prices were putting
additional stress on a U.S. economy already under considerable
strain from the credit crisis fallout. [ID:nN15305285].
                                
 Prices had tumbled even though the U.S. dollar fell to a
record low against the euro on Tuesday before recovering some
ground. [ID:nN15354418]
                                
 Investors have pumped cash into oil and other commodities
this year looking to hedge against inflation and the weak
dollar, which has helped drive crude oil up about 50 percent
this year to a record above $147 a barrel earlier in July.
                                
 The world's top oil exporter Saudi Arabia wants to see lower
oil prices, Saudi King Abdullah said in an interview with an
Italian newspaper.
                                
 "When the price of oil hovered around $100 a barrrel, we
were already unhappy. Imagine what we feel now, when there is
talk of $200," he said. [nL16518781]
                                
 Oil's six-year rally has been driven partly by ballooning
demand from developing economies such as China and India.
                                
 But consumers in large economies like the United States,
already feeling the pinch of the credit crunch and housing
crisis, have begun to scale back on energy use, with retail
gasoline demand down more than 5 percent last week from a year
ago, according to MasterCard Advisors. [ID:nN15330822]
                                
 "The market is coming to the realisation that OECD demand is
going to start contracting, even OPEC has trimmed demand
growth," Pervan said.
                                
 OPEC on Tuesday cut its global demand forecast for 2008 for
the fourth time this year, adding that consumption would
continue to slow in 2009. [ID:nL15315733]
                                
 A Reuters poll ahead of weekly U.S. inventory data due later
on Wednesday forecast a 2.1 million barrel fall in U.S. crude
stocks last week, while gasoline inventories are forecast to
have dropped 400,000 barrels and distillates to have risen by
2.0 million barrels.
 (Reporting by Jane Merriman in London and Luke Pachymuthu in
Singapore, editing by Anthony Barker)