Oil plummeted $2.38 to $89.52 in early trading Wednesday after the U.S. Energy Information Agency announced that weekly crude oil inventories rose 4.3 million barrels to 287.1 million barrels, well above the 1.25 million barrel increase consensus estimate.

Heating oil fell 4 cents to $2.49, unleaded gasoline fell about 5 cents to $2.26, and natural gas fell about 4 cents to $8.15 per million BTUs.

However, despite the prospect of a U.S. recession that could lower oil demand, the International Energy Agency maintained its 2008 global oil demand forecast at 87.8 million barrels per day, a 2.3% increase from 2007, the organization announced Wednesday in a statement.

Still, the IEA qualified its 2008 oil demand projection by saying the estimate would be adjusted downward if evidence indicated the U.S. economy continues to slow.

Further, the IEA said OECD-country oil inventories continued to fall in November 2007, declining 38.1 million barrels to a 123.8 million barrel year-over-year average, a level that's below the five-year average for inventories. The level amounts to a 51-day supply of oil for OECD countries.

Global demand vs. U.S. recession fears

Independent Energy Trader Jim Dietz said the IEA's 2008 global demand estimate and U.S. inventory statistics appear to be at odds, but he thinks the latter will have a more important impact on the market, for the next two quarters.

"For the past three years, oil's price has been a global demand story, but the mood and numbers suggest oil will now be a U.S. inventory story. Inventories in the U.S. are rising, and if they continue to rise due to the slowing U.S. economy, oil's price will continue to fall," Dietz told BloggingStocks Wednesday.

Dietz said he expects oil to clear support at $87 and test $80 in the next two to three months.

"Tightening global inventories are a bullish factor, but they won't be enough to overcome the bearish factor of rising oil inventories in the U.S., the world's largest energy user per capita," Dietz said. He added that prices will fall further if U.S. gasoline demand moderates in the months ahead. So far, that hasn't occurred.

Global oil supply averaged 87 million barrels per day in December 2007, an increase of 870,000 barrels per day, due to production increases in OPEC nations, North America, the former Soviet Union, Brazil and China, the IEA said. Meanwhile, 2007 global oil demand was revised up 150,000 barrels per day to 85.8 million barrels per day on stronger-than-expected demand in Asia, the Middle East and OECD countries.