Feb. 16 (Bloomberg) -- Crude oil traded below $37 a barrel in New York on speculation a recession in the world’s largest economies will stifle demand for fuel.

Japan’s economy, the world’s largest oil consumer after the U.S. and China, contracted the most since 1974 in the fourth quarter, a government report showed today. The U.K. will shrink at almost twice the pace previously forecast this year, a business lobby group said.

Oil for delivery next month is “under a lot of downward pressure on more crude oil inventory builds in the U.S. and a continuous flow of negative economic data,” Harry Tchilinguirian, a senior oil-market analyst at BNP Paribas SA in London, said by phone today.

Crude oil for March delivery traded at $37.24 a barrel, down 27 cents, in electronic trading on the New York Mercantile Exchange at 3:47 p.m. local time. The fuel earlier fell as low as $36.55. Floor trading on Nymex is closed today for the U.S. Presidents’ Day holiday.

Japan’s gross domestic product contracted at an annual 12.7 percent pace in the fourth quarter 2008, the Cabinet Office said today in Tokyo. That followed a 13.9 percent drop in exports from the third quarter.

The U.K.’s gross domestic product will contract 3.3 percent, instead of the 1.7 percent predicted in November, the Confederation of British Industry said today. By the end of 2009, the economy will have contracted for six consecutive quarters, the biggest U.K. business lobby said.

Brent crude for April settlement traded 81 cents lower at $44 a barrel on London’s ICE Futures Europe exchange today.

Demand Reduction

“What is really driving it lower is the actual reduction in demand,” said Peyton Feltus, president of Randolph Risk Management Inc. in Dallas. “The front-months are still taking the brunt of it.”

World oil demand is unlikely to rebound until 2010, when it may begin rising by about 1 percent a year through 2013, International Energy Agency Executive Director Nobuo Tanaka said in London today

The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world’s oil, will probably cut production again next month if prices remain below $40, Iran’s representative, Mohammad Ali Khatibi, said yesterday.

“OPEC supply cuts will take time before they make an impact on consumer inventories because global refinery utilization rates are depressed,” Tchilinguirian said.

Stockpiles in the U.S., the world’s biggest oil consumer, have risen for the past seven weeks and are at their highest since July 2007, according to Energy Department records.

Production Ceiling

The group fixed a daily production ceiling of 24.845 million barrels from Jan. 1 for its 11 members with quotas, taking its cuts since September to 4.2 million barrels a day.

OPEC production cuts and cold weather are helping rebalance the oil market, bringing the low point for prices closer than previously expected, Goldman Sachs Group Inc. analysts said.

“The faster-than-expected pace of OPEC cuts and continued low temperatures are likely accelerating rebalancing in the global oil market,” Goldman analysts including Giovanni Serio and Jeffrey Currie said in a report today. “As a result, the bottoming in prices and time spreads could be closer than we originally expected.”

Still, some companies are expanding reserves even as the weak global economy saps demand for the fuel.

Exxon Mobil Corp., the world’s largest oil company, said proved reserves rose 0.4 percent last year to the equivalent of 22.8 billion barrels of oil.

Exxon Mobil said it added 1.5 billion oil-equivalent barrels to its proved reserves in 2008, enough to sustain current production levels for 15.3 years. Reserve additions, excluding asset sales, replaced 110 percent of production, Irving, Texas-based Exxon Mobil said in a statement today.

To contact the reporter on this story: Ayesha Daya in Dubai at adaya1@bloomberg.netMario Parker in Chicago at mparker22@bloomberg.net

Last Updated: February 16, 2009 16:01 EST