Oil prices drop on economy fears

With global supplies tight, any threat to production causes concern

Oil prices have fallen on concerns about the health of US economy and expectations of more output from Opec.

US sweet, light crude dropped 75 cents to $85.27 a barrel, while London Brent crude fell 42 cents to $82.85.

Oil is now about $5 off its $90.07 peak set last week, but analysts are divided over which way it will head.

Turkey's diplomatic efforts in dealing with Kurdish rebels in northern Iraq and an expected rise in US oil stocks also spurred the retreat in prices.

Analysts say that the oil price is highly sensitive to news on crude supply, economic data and geopolitics.

"The market is still overheated from its rally and could go down to around $80," said Gerard Rigby, from Fuel First Consulting in Sydney.

"But depending on what the US stocks do and if the dollar weakens again, the market could go up to $90."

Stockpiles

Weak US economic data have stoked fears that demand for oil may fall if the world's largest economy slows.

Analysts also expect healthy US crude oil stockpiles to be unveiled on Wednesday by the US energy department, calming worries that energy supplies could become scarce in the build up to the cold winter months in the northern hemisphere.

The oil producers' cartel Opec is planning to boost production by 500,000 barrels a day from November to cope with rising demand from fast-growing Asian economies.

An agreement between Turkey and Iraq to work together to root out Kurdish PKK rebels in northern Iraq has also helped to calm the market.

Turkey has pledged to exhaust diplomatic efforts to solve the crisis before considering military action.