* March U.S. crude futures <CLc1> expire at Friday's close
* European stock index hits six-year low
* Tokyo stock index close lowest for 25 years
(Updates prices, adds comment; paragraph 7-8)
By Christopher Johnson
LONDON, Feb 20 (Reuters) - Oil fell more than $2 a barrel to
below $38 on Friday, retreating as the global economic outlook
deteriorated, dragging stock markets down across the world.
Oil prices rallied strongly on Thursday, jumping 14 percent
after data showing an unexpected draw in U.S. crude stocks. But
worries over the health of oil demand have resurfaced, with
sentiment dented by sharp falls in equity markets.
European shares <> tumbled to a six-year low as
investors fretted about capital increases and bank
nationalisation on the back of a deepening economic downturn.
The broad Topix <> index of Japanese shares closed at its
lowest level in about 25 years. [] []
Worries over the fragility of the global economy boosted
gold, which saw a rush to safety take bullion up more than 1
percent to its highest since March last year. []
U.S. crude futures for March delivery, which expire on
Friday, were down $1.68 at $37.80 a barrel by 1505 GMT, after
posting the biggest settlement gain since Dec. 31 in the
previous session.
April delivery <CLc2> fell $1.75 to $38.42, while Brent for
April delivery <LCOc1> dropped $1.35 to $40.64 a barrel.
"As long as we make new highs in gold, we're seeing further
downward pressure on the oil. In the meantime, the equity
markets are sliding further south into new low territory so that
just paints a bearish picture here for this oil complex," said
Jim Ritterbusch, president, Ritterbusch & Associates.
"Plus we've got the March WTI expiring today and I think the
longs are going to be more on the shorts and that should give us
some lower prices."
BLEAKEST DIAGNOSIS EVER
Most pressure was on the expiring March U.S. crude contract,
which has been weighed down by very high crude inventories at
Cushing, Oklahoma, the delivery point for NYMEX futures.
Brent and later U.S. crude futures months were more stable.
"Brent bounced back above $40 yesterday," said Christopher
Bellew, broker at Bache Commodities. "In spite of economic gloom
and bearish data, Brent is holding its sideways range."
In its monthly report on Friday, the Bank of Japan
reiterated that economic conditions were deteriorating rapidly
-- its bleakest diagnosis ever -- and would likely continue to
worsen for the time being. [] []
Japan has been hit particularly hard by the global slump,
triggered by the U.S. housing market meltdown, due to its heavy
dependence on exports and chronically weak domestic consumption.
Crude inventories in the United States, the world's top
consumer, fell slightly last week on lower imports and higher
demand, the U.S. Energy Information Administration said,
snapping seven straight weeks of builds against market
expectations. []
The bullish oil data countered pessimism in the U.S. stock
market, where the Dow industrials index <> closed at its
lowest in more than six years on a gloomy jobs report and fears
that banks could be nationalised. []
Crude prices have fallen more than $100 a barrel from the
peaks hit last July as the worsening economic crisis has bitten
into oil demand, prompting the Organization of the Petroleum
Exporting Countries (OPEC) to agree to deep output cuts.
In the latest indication that OPEC members are complying
with the agreed cuts, Kuwait notified at least two buyers in
Asia that it will keep curbs of 5 percent below contracted
volumes for April-June term crude oil supplies, steady from
March, trade sources said. []
(Additional reporting by Chua Baizhen in Singapore; Editing by
James Jukwey)
