Oil Heads for $92 on Weak German Data

German industrial output falls more than expected; fall in dollar fails to halt slide. U.S. supply growth and weak global demand weigh on prices.

Brent crude oil fell towards $92 a barrel on Tuesday, pushing towards 27-month lows as weak demand and ample supply outweighed the price support from a weaker dollar.

German industrial output fell by far more than expected in August, posting its biggest drop since early 2009, economy ministry data showed on Tuesday, driving European equities down and pointing to weak demand for oil.

"There is stagnation in Europe and China is slowing down. It's going to be very difficult for the oil price to rally on that basis," said Michael Hewson, chief market analyst at CMC Markets in London.

A slump in the dollar on Monday helped stem oil's decline. The U.S. currency suffered its biggest one-day drop since January against a basket of major currencies. The dollar recovered slightly on Tuesday.

Oil is priced in dollars on world markets, and a weak greenback makes fuel cheaper for holders of other currencies.

Brent was down 30 cents at $92.49 a barrel by 1201 GMT. The global benchmark reached a low of $91.25 on Monday before recovering in late trading. U.S. crude was down 11 cents at $90.23.

The number of net Brent crude long positions on the Intercontinental Exchange fell by nearly a sixth in the week to Sept. 30 to 36,704, ICE data showed on Tuesday, as investor confidence in oil slumped.

The dramatic price collapse over the past few months has led some analysts to suggest that an era of relatively high prices may be coming to an end as production increases faster than consumption.

U.S. crude oil output has jumped more than 3 million barrels per day since 2010 at a time when sluggish global economic growth has depressed demand for fuel, while improving energy efficiency and use of alternative fuels have also begun to curb oil demand.

What is happening in oil markets represents "the impact of this tremendous surge in U.S. oil production", says Daniel Yergin, vice chairman of IHS and an oil market historian.

Investors awaited U.S. crude inventory data for clues on demand at the world's top oil consumer.

U.S. crude stocks rose by 1.4 million barrels last week to 358 million barrels, according to a Reuters poll ahead of weekly inventory reports from industry group the American Petroleum Institute (API) and the U.S. Department of Energy's Energy Information Administration (EIA).

Ministers from the Organization of the Petroleum Exporting Countries meet in Vienna next month to discuss output policy and may decide to reduce production, industry analysts say.

"Until OPEC makes some moves to reduce supply, oil prices are likely to remain under pressure," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt.

With over a month until the meeting, oil markets are facing several weeks of volatility, Hewson of CMC Markets said.

"There is real potential for a price war because Saudi Arabia is reluctant to cut production," he added.

Oil is still vulnerable to political shocks from the Middle East, traders say.

Islamic State fighters have advanced further into Kobani, a town on the Syrian-Turkish border, showing the insurgents' resilience and increasing the possibility that Turkey could be dragged into the conflict.

NATO would support member Turkey if it came under attack, alliance Secretary General Jens Stoltenberg said on Monday.

By Sam Wilkin