Oil prices lower as traders fret over US mortgage woes

SINGAPORE (AFP) - Oil prices were weaker in Asian trade Tuesday on continued worries that US energy demand will eventually be hit by financial market turbulence, dealers said.

At 10:20 am (0220 GMT), New York's main contract, light sweet crude for September delivery fell 10 cents to 71.52 US dollars per barrel from 71.62 dollars in late US trades Monday.

Brent North Sea crude for September delivery was eight cents lower at 70.15 dollars.

"Investors are cautious given current financial market turmoil," said Societe Generale.

"Market fundamentals remain supportive but the sub-prime crisis is still a key issue," it said.

The US Federal Reserve and other central banks pumped billions of dollars into financial markets to ease worries about a possible credit crunch, in which commercials banks restrict lending to companies.

The Fed on Monday injected a further two billion dollars into the financial system.

On Thursday and Friday, the Fed had pumped in a combined 62 billion dollars to ease tightening credit linked to the crisis in the US subprime mortgage sector.

The European Central Bank and the Bank of Japan have also injected cash into the money market to address liquidity shortages at commercial banks amid growing fears about the US home loan sector.

Analysts at US investment bank Goldman Sachs said that the recent declines in oil prices, which were driven by speculators exiting the market, would be short-lived.

They added that prices would find support from tight global supplies and fierce demand for crude oil from the likes of China and the United States -- the biggest global energy consumers.

"With the continuing tightening of forward fundamentals, it is increasingly likely that the recent price declines driven by speculative length liquidation will prove to be short-lived," Goldman Sachs analysts said.

Prices were battered last week because players feared oil demand might slump in the wake of a global credit crunch.

Ongoing concerns over US sub-prime loan defaults sparked a bout of risk aversion, and analysts said the troubled US housing sector could well end up harming the global economy.

Subprime loans are made to borrowers with patchy credit histories.