Light, sweet crude for February delivery was down US$1.00 to US$36.28 a barrel by afternoon in Singapore in electronic trading on the New York Mercantile Exchange. The contract fell 50 cents overnight to settle at US$37.28.

Prices have fallen 27 per cent since last week and analysts say they may test a five-year low reached last month of US$33.87 a barrel.

US oil inventories have been rising for months, proof the current recession is biting into demand for crude products. The Energy Department's Energy Information Administration said on Wednesday that crude inventories grew by 1.2 million barrels for the week ended on Friday after jumping 6.7 million barrels the previous week.

Gasoline inventories rose by 2.1 million barrels and distillates increased by 6.4 million barrels.

'It just points to the doom and gloom in the American economy,' said Mr Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney.

Investors were also dismayed by bad retail numbers. The Commerce Department reported on Wednesday that retail sales dropped 2.7 per cent last month, more than double the 1.2 per cent decline that analysts expected.

The Dow Jones industrial average, which oil traders monitor as a barometer of investor sentiment about the US economy's prospects, fell 2.9 per cent on Wednesday.

Investors remain optimistic the price of oil will rise later in the year, as the Organization of Petroleum Exporting Countries continues to implement 4.2 million of output cuts announced since September.

The May contract trades at US$50.48 a barrel.

'Opec is cutting and that should start impacting inventories,' Mr Rigby said. 'Economies will start turning around, and I think demand is bottoming out.' In other Nymex trading, gasoline futures fell 1.67 cents to US$1.15 a gallon. Heating oil slid 2.08 cent to US$1.44 a gallon while natural gas for February delivery was steady at US$4.97 per 1,000 cubic feet.

In London, February Brent crude fell 75 cents to US$44.33 a barrel on the ICE Futures exchange. -- AP