Oil Falls Below $40 On Demand Concerns

By 0932 GMT, the pan-European FTSEurofirst 300 index of top shares was down 0.3 percent at 823.78 points after gaining 2 percent on Friday.

Oil prices fell on Monday as a gloomy U.S. demand outlook outweighed talk of OPEC production cuts and hopes that a U.S. economic stimulus package would be passed by Congress this week.

U.S. crude for March delivery settled at $39.56 a barrel, down 61 cents. London Brent settled at $46.02 a barrel, down 19 cents.

"The overall weight is to the low demand picture ... the recession argument is winning out time and time again," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.

"In the case of the OPEC cuts, we're starting to see them, but they still have some ways to go. In terms of the effect of the stimulus package, that's not something that's going to be seen in the real economy until the late third quarter or fourth quarter (of 2009) at the soonest."

Earlier in the day, oil prices were boosted by comments from the secretary general of the Organization of Petroleum Exporting Countries that the group could cut oil output further to counter slumping demand.

The market also drew support from optimism that the administration of U.S. President Barack Obama would secure Congressional passage this week for a giant economic stimulus plan.

Oil prices have dropped from a record high above $147 a barrel in July as the global economic downturn slashed demand for fuel.

U.S. stocks were lower on Monday as negative broker comments on consumer companies and poor earnings offset investors' hopes a financial sector bailout would spare shareholders.

OPEC, U.S. STIMULUS

On Monday, Secretary-General Abdullah al-Badri reiterated OPEC's willingness to cut oil production further to steady prices at the group's next supply policy meeting on March 15 in Vienna.

"If we think we still need more action, I'm sure the conference will take more action to stabilize the market," Badri said.

Badri also said the 12-member group appeared to be implementing production cuts more thoroughly than expected by some, with 80 percent compliance.

OPEC agreed late last year to cut oil supply by 4.2 million barrels per day from September's level in an attempt to boost prices.

Warning against delay and bickering in Washington, Obama launched a new drive on Monday to win passage of an $800 billion economic recovery plan he said would help put millions of Americans back to work.

U.S. Senate Majority Leader Harry Reid said Congress must complete work on the economic stimulus package this week and would not leave for its February break -- slated to begin this weekend -- until it finishes.