Dec. 31 (Bloomberg) -- Crude oil fell for a second day, heading for a record annual drop, on speculation that U.S. fuel stockpiles are increasing as the recession cuts demand.

U.S. gasoline supplies probably rose last week to the highest since August, according to a Bloomberg News survey conducted before an Energy Department report due today. Confidence among U.S. consumers sank to the lowest in at least 41 years as Americans grew concerned that they will lose their jobs, the New York-based Conference Board said.

Crude oil for February delivery dropped as much as $2.09, or 5.4 percent, to $36.94 a barrel on the New York Mercantile Exchange and traded at $37.54 as of 1:27 p.m. London time. Prices are down 61 percent this year, the first annual decline since 2001 when oil fell 26 percent, and the biggest slide since trading began in 1983.

“Crude is still absorbing the negative economic news, focusing on consumer confidence and those types of indicators,” said Olivier Jakob, managing director of Zug, Switzerland-based Petromatrix GmbH. “It is a very thin market, but I think in the first weeks of January the oil markets will refocus on the fundamentals of supply and demand.”

Oil may rebound next year to average $60 a barrel as the Organization of Petroleum Exporting Countries makes record production cuts to counter the deepest economic slump since World War II, according to the median estimates of 33 analysts compiled by Bloomberg. That would be a 54 percent gain from today’s price.

OPEC Supply

Oil supply from the 11 OPEC members subject to quotas averaged 27.1 million barrels a day in December, down from 27.5 million barrels a day in November, according to consultant PetroLogistics Ltd.

For November and December, the target ceiling for 11 OPEC members was 27.308 million barrels a day. A lower collective goal of 24.845 million barrels a day will come into force on Jan. 1 when the producer group begins output cuts agreed on this month at a meeting in Oran, Algeria.

“We are very near the bottom in oil prices, or will reach the bottom in the next few weeks,” said Ehsan Ul-Haq, head of research at Vienna-based JBC Energy GmbH. Prices will be subdued “as long as stockpiles remain very high,” he said.

Brent crude for February settlement retreated as much as $2.05, or 5.1 percent, to $38.10 a barrel on London’s ICE Futures Europe exchange. The contract traded at $38.64 as of 12:49 p.m. local time.

London’s ICE Futures Europe exchange is closed tomorrow and resumes trading on Jan. 2. Electronic trading on Nymex is also closed and resumes at 6 p.m. in New York for the following day’s trading date.

Fuel Inventories Gain

U.S. gasoline stockpiles probably rose 1.7 million barrels in the week ended Dec. 26, from 207.3 million barrels the week before, according to the median of 13 analyst estimates.

Supplies of distillate fuel, a category that includes heating oil and diesel, probably increased 1.5 million barrels. Crude-oil inventories probably dropped 1.45 million barrels last week, the survey showed.

The Energy Department is scheduled to issue its weekly report at 10:35 a.m. in Washington today.

Oil rose more than 6 percent in each of the two trading days through Dec. 29 on concern that supplies from the Middle East may be disrupted amid a conflict between Israel and Hamas in the Gaza Strip. In the deepest strike yet into Israeli territory, a rocket last night hit the city of Beersheba, 40 kilometers (24 miles) from Gaza.

To contact the reporters on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net; Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

Last Updated: December 31, 2008 08:28 EST