Jan. 23 (Bloomberg) -- Oil fell in New York on the expectation that U.S. inventories of crude and fuels will increase as refiners maintain output at the lowest level in two months, anticipating slowing demand from consumers.

An Energy Department report tomorrow may show U.S. oil stockpiles rose for the week ending Jan. 18 as refiners took delivery of cargoes delayed for tax purposes, according to a Bloomberg News survey of 11 analysts. Gasoline supplies probably climbed for an 11th week. Distillates, including heating oil and diesel, probably gained for a fourth week.

``With gasoline and distillate inventories expected to be up, this means a good supply of oil products and weaker demand,'' said Tetsu Emori, fund manager at Astmax Co. in Tokyo. ``The refineries have enough room to supply products.''

Oil for March delivery dropped as much 70 cents, or 0.8 percent, to $88.51 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $88.60 at 3:42 p.m. in Singapore.

The contract declined 71 cents, or 0.8 percent, to $89.21 yesterday, having slumped as much as 5 percent to $85.42 before the U.S. Federal Reserve cut interest rates.

The February contract expired yesterday, falling 0.8 percent to $89.85 a barrel, the lowest close for a front-month oil contract since Dec. 10.

Prices pared losses after the Federal Reserve made an emergency 75-basis point rate cut, citing ``increasing downside risks to growth.'' Oil has fallen 11 percent since reaching a record $100.09 a barrel on Jan. 3 on concerns that faltering global economies will weaken demand growth.

`Band-Aid'

The rate cut ``is like putting a band-aid on arterial bleeding,'' said Mark Waggoner, president of Excel Futures Inc. in Huntington Beach, California.

Brent crude for March settlement fell as much as 55 cents, or 0.6 percent, to $87.90 a barrel on London's ICE Futures Europe exchange. It was at $88.02 at 3:05 p.m. Singapore time. The contract yesterday rose 94 cents, or 1.1 percent, to $88.45.

Refinery operating rates were probably unchanged at 87.1 percent of capacity after plunging 4.2 percentage points from a four-month high the prior week, according to the survey.

``The fundamentals from the oil standpoint with the run cuts means builds in crude, but at the same time it should be bullish for products,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``It could be that the bearishness to crude will take precedence over the bullishness to products.''

Oil demand is expected to fall in the second quarter as refineries shut for annual maintenance after the Northern Hemisphere winter, said Qatar's oil minister Abdullah bin Hamad al-Attiyah, The Peninsula reported.

Speaking less than two weeks before the 13-member Organization of Petroleum Exporting Countries' meet to study output policy on Feb. 1, al-Attiyah told reporters that oil markets are well supplied and there is no shortage, the paper reported.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

Last Updated: January 23, 2008 02:46 EST