* Oil falls more than $3 after U.S. crude stocks rise
* U.S. Fed lead round of interest rate cuts
* Global economic weakness threatens fuel demand
(Updates throughout)
By Joe Brock
LONDON, Oct 8 (Reuters) - Oil prices fell by more than $3 on
Wednesday after U.S. government data showed a big increase in
crude stocks and a big drop in demand, underlining expectations
economic weakness will erode fuel consumption.
In volatile trade, the market had earlier fallen by more
than $4 to a 10-month low and then briefly rose into positive
territory after news of a wave of U.S.-led interest rate cuts
designed to shore up the global economy.
U.S. light crude for November <CLc1> delivery was down $3.01
cents at $87.05 a barrel by 1514 GMT.
London Brent crude <LCOc1> fell by $2.66 to $82.00.
Data from the Energy Information Administration showed U.S.
crude stocks had risen by 8.1 million barrels as inventories
recovered from storm disruptions, much more than the 2.3
million-barrel build forecast by analysts.
It also showed gasoline stocks had increased by 7.2 million
barrels compared with forecasts for a 1.1 million rise, while
total demand for products over the past four weeks was down by
8.6 percent compared with a year before.
"Inventories are recovering off the back of the
hurricane, and we're rebuilding lost barrels from the last
three weeks." said Mark Kellstrom, an analyst at Strategic
Energy Research.
"It looks negative for the crude market but
inventory levels are still on the low side, and we would argue
that it's more than discounted in the price of crude oil."
Early in the session U.S. crude had fallen to $86.05, its
lowest since Dec. 6, 2007, after British government action to
prop up its banks failed to reassure financial markets and oil
traders anticipated oil demand would fall.
Financial markets rallied collectively after the U.S.-led
rates cuts.
The U.S. Federal Reserve said it was cutting its key rate by
50 basis points to 1.5 percent.
Other banks cutting interest rates also included China,
which reduced its key rate by 27 basis points.
Surging oil demand in China and elsewhere in Asia played a
large part in oil's sustained rally that culminated in a record
of $147.27 in July this year.
Many analysts had predicted fuel demand in China would
remain strong even if it plummeted in the United States, the
world's biggest energy consumer, but concern has mounted that
the Chinese economy will not escape global economic turmoil.
Members of the Organization of the Petroleum Exporting
Countries (OPEC) have said they have become uneasy about oil's
sharp price drop from the record highs hit earlier this year.
Nigeria's oil minister on Wednesday was among the latest to
say OPEC might need to reduce output.
"There may be a need to intervene to balance the market if
the price slide seemingly predicted on (lower) demand and
over-supply continues," Odein Ajumogobia told Reuters.
OPEC's next scheduled meeting is in Algeria in December.
(Additional reporting by David Sheppard; Editing by Barbara
Lewis and Anthony Barker)
