Oil steadies, focus on U.S. oil demand

LONDON (Reuters) - Oil steadied on Wednesday, after a sharp fall the previous session on expectations that a faltering economy in top energy consumer the United States would hit demand growth.

Prices had plunged more than $6 in the previous session, the steepest in dollar terms in 17 years.

U.S. crude was 25 cents down up at $138.49 a barrel by 7:59 a.m., after briefly dropping by more than $1 to $137.22 a barrel.

On Tuesday the market saw its biggest one-day fall since 1991, when prices tumbled after the U.S. began bombing Iraq in the first Gulf War.

London Brent crude was 30 cents down at $138.45 a barrel.

"I think what happened yesterday, especially with the dollar weakening, suggests that the market is taking a little more focus on the real fundamentals," said Mark Pervan, head of commodity research at ANZ.

U.S. Federal Reserve Chairman Ben Bernanke said the weak housing market and high energy and food prices were putting additional stress on a U.S. economy already under considerable strain from the credit crisis fallout..

Prices had tumbled even though the U.S. dollar fell to a record low against the euro on Tuesday before recovering some ground.

Investors have pumped cash into oil and other commodities this year looking to hedge against inflation and the weak dollar, which has helped drive crude oil up about 50 percent this year to a record above $147 a barrel earlier in July.