VIENNA - RESURGENT economic jitters sent oil prices below US$38 (S$54) a barrel on Wednesday, as investors focused on the global slowdown that has dragged crude markets down some 60 percent this year.

Conflicts such as the fighting between Israel and Hamas usually propel prices upward because of increased fears that unrest could spread in the oil-rich Middle East.

Israel rejected mounting international pressure to suspend its devastating air offensive against Palestinian militants whose rocket barrages are striking ominously close to the Israeli heartland.

But after an upward blip early this week, oil has resumed its market slide as traders again turn their attention to disastrous economic fundamentals worldwide.

Light, sweet crude for February delivery slid US$1.07 to US$37.96 a barrel in light New Year's Eve electronic trading on the New York Mercantile Exchange by noon in Europe. The contract overnight fell 99 cents to US$39.03.

Prices hit a record US$147.27 a barrel on July 11, fuelled by speculation that soaring growth in emerging economies, such as China and India, would boost demand for crude.

However, investor sentiment turned sour in the second half of the year as a credit crisis in the US mushroomed into a global slump in consumer spending and industrial production, driving prices to their lowest in almost five years at US$33.87 earlier this month.

Prices rose 57 per cent in 2007 to US$95.98 a barrel.

Crude's Nymex slide has been paralleled on London's ICE exchange.

There Brent futures have fallen almost 76 per cent from their summer highs. On Tuesday. February Brent crude slipped US$1.46 to US$38.69 a barrel.

Vienna's JBC Energy, however suggested that prices were close to bottoming out, predicting that Brent would increase gradually to average at US$74.75 a barrel next year.

'This is mainly due to Opec cuts, which should result in large stockdraws in the first half of the year,' said JBC's research note. 'Lower supplies from Russia will also contribute to this trend and global demand should start recovering towards the end of the year, especially in Asian economies.'

Going into next year, investors remained focused on signs of dwindling demand for crude as the US, Europe and Japan face recessions and most developing countries battle slowing growth.

Traders will also be looking for evidence that Opec is implementing cuts of more than 4 million barrels a day of announced since October. The Organization of Petroleum Exporting Countries, which accounts for about 40 per cent of global supply, has not ruled out further output quota reductions if prices don't rebound in 2009.

One gauge of US oil demand, the weekly oil inventories report by the US Energy Department's Energy Information Administration, is expected to show on Wednesday that oil stocks fell 1.75 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

The Platts survey also projects that gasoline inventories rose 1.7 million barrels and distillates increased 1.3 million barrels last week.

Gasoline futures fell by more than a cent to 87 cents a gallon on the Nymex. Heating oil dropped by close to 2 pennies to US$1.27 a gallon, while natural gas for February delivery was lost less than a cent to fetch US$5.85 per 1,000 cubic feet. -- AP