Oil prices fall

Oil prices fell on Monday, with Brent crude falling toward $97 a barrel and U.S. crude sliding below $88, as dealers focused on weaker equity markets and rising U.S. oil inventories.

Brent crude for March was down 30 cents to $97.30 a barrel by 1449 GMT. It reached $99.20 on January 14, the highest since October 2008. U.S. crude for March lost $1.27 to $87.84.

"The dollar strengthened and the stock market looks a little tired so this looks like crude testing support after last week's losses and the inventory builds," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

Earlier in the session, Brent rose to above $98 on renewed confidence that developed economies are recovering and as Saudi Arabia's oil minister predicted strong oil demand in 2011.

The Saudi minister, Ali al-Naimi, said he expected global oil demand to rise between 1.5 million and 1.8 million barrels per day (bpd) this year -- more than forecast by the International Energy Agency.

Brent's premium to U.S. crude, also known as West Texas Intermediate or WTI, reached $9.71 on Monday, its highest since February 2009, on tight North Sea supplies and strong emerging market demand.

"There are bearish factors on the WTI side and bullish factors on the Brent side," said Mike Wittner, analyst at Societe Generale. "Put the two together and you have the basis for a wide spread."

High inventories at Cushing, Oklahoma, the delivery point for U.S. futures contracts, have depressed U.S. crude, while North Sea production glitches have helped to bolster Brent.

GOLDMAN SEES BULL MARKET

Saudi Arabia is by far the largest oil producer in the Organization of the Petroleum Exporting Countries and holder of the bulk of the world's unused oil production capacity.

Speaking at an industry conference, Naimi declined to say whether Saudi Arabia's production was in line with its OPEC target of 8.05 million bpd.

The IEA said in a report last week that the OPEC leader was making more crude available to the market.

Naimi said Saudi Arabia was set to hold about 4 million bpd of spare crude oil capacity in 2011. The kingdom has capacity of 12 million bpd, or 12.5 million bpd including the neutral zone.

Oil is still a long way from the record high of $147 a barrel it reached in 2008 and while analysts do not expect that to be revisited any time soon, some prominent voices see the rally running further.

Goldman Sachs said it believed a "structural bull market" would return to the oil market as OPEC used more of its idle capacity to meet demand.

"As OPEC spare capacity is drawn down, we expect a structural bull market to return to the oil market, with substantially higher prices," Goldman said in a report on Monday.

(Reporting by Alex Lawler, Robert Gibbons and Florence Tan; editing by William Hardy and James Jukwey)

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