Oil extends slump and Asia stocks at 3-week low

By Rafael Nam

HONG KONG (Reuters) - Oil and metals prices skidded on Tuesday toward multi-month lows, denting shares of companies in the resources sector and sending Asian stocks to their lowest in three weeks amid deepening fears of a weakening global economy.

Oil prices fell more than $1 to near Monday's three-month low below $120 a barrel in a sharp retreat from a record above $147 touched in mid-July, on signs of rising OPEC output at a time of declining world demand.

Not even a storm in the Gulf of Mexico prevented the slide in oil, which comes as a mixed blessing for Asia. Weaker oil prices provide relief for countries grappling with double digit inflation, but also confirm suspicions of slowing global demand -- a bad omen for the export-reliant region.

The dollar got a boost from cheaper oil, though caution remained ahead of the Federal Reserve's meeting later on Tuesday. The Fed is expected to leave U.S. interest rates unchanged, partly due to easing energy prices.

"At the moment, people are taking the view that the glass is half-empty, rather than half-full," said Greg Goodsell, equity strategist at ABN AMRO in Sydney. "Rather than looking at the positive side, that weaker commodities take the pressure off inflation, people are seeing it as a product of slower growth."

U.S. crude futures were down $1.13 at $120.28 at 3:50 a.m. British time, after falling on Monday to as low as $119.50, the lowest level since early May.

OPEC oil supply rose for a third consecutive month in July due to higher output from the world's top exporter Saudi Arabia and smaller increases from other members, a Reuters survey showed on Monday.

The falls in crude prices came even as Tropical Storm Edouard moved across the Gulf of Mexico, with a 1-in-5 chance of hitting the Texas coast as a hurricane, according to U.S. forecasters.