Oil briefly dropped below $55 Friday to its lowest level since mid-2005 amid fund selling across commodity markets on worries of an economic slowdown in the world's largest energy consumer, the United States.

High U.S. oil inventories heading into winter, and selling pressure ahead of the expiry of the front-month U.S. crude contract at the close of trading Friday, fueled the selling.

U.S. crude was down 61 cents at $55.65 a barrel at 1600 GMT after hitting its lowest level since June 14 last year at $54.86. The price has fallen nearly 30 percent from the record of $78.40 in July. London Brent crude rose 11 cents at $58.65.

"There is rising concern that we could be going into a U.S. economic slowdown," said Rick Mueller, senior oil analyst at consultancy ESAI. "This fall also speaks of a well supplied crude market and a warmer outlook in the U.S., and with those conditions maybe the market is starting to wake up to the fact that prices shouldn't be near $60."

There was also widespread talk in the market that a fund was in trouble and unwinding its positions.

Base metals also slid on concern that if the world's largest economy slows, global demand for raw materials would also suffer. London copper prices slid to their lowest levels since June on Friday.

U.S. industrial output data for October on Thursday was weak, showing signs of a cooling economy.

Oil markets had traded in a roughly $58-$62 barrel range for around six weeks, the longest period of range-bound trading since the same time a year ago.

While the front-month U.S. contract for December was well below that level on Friday, the second-month futures contract for oil in January was still trading near $58. That contract will become the benchmark on Monday.

CONTRACT EXPIRY

"We really can't ignore the fact that it is contract expiry," said Mueller. "As things stand, once that contract is off the board, we'll be back where we were on Monday."

Still, some traders say prices may break below the band, dragged down by ample stocks, a relatively mild start to the U.S. winter and doubts about the ability of the Organization of the Petroleum Exporting Countries to enforce output cuts agreed from Nov. 1.

Lower oil prices have spurred product consumption, but warmer than usual weather has sapped heating oil demand.

The U.S. National Weather Service on Thursday forecast warmer-than-normal weather for the U.S. Northeast, the world's top heating oil market, from December until February, although other forecasts are mixed.

OPEC producers agreed at an emergency meeting last month to cut supplies by 1.2 million barrels per day (bpd) from Nov. 1, although investors doubt the cuts will be fully enacted.

OPEC this week prepared the ground for a further ouptut cut when the group next meets in output in December, citing concern about potentially large rises in inventories next spring if it continues to pump at present levels.

Analysts said the market may be testing the group to find the oil price it wants to defend.

For some longer-term investors who believe that markets will get tighter in the years to come as suppliers struggle to meet rising demand, the fall in price represents a buy opportunity.

"I don't think short-term sentiment is looking anything other than negative," said Mark Matthias, chief executive of British investment specialist Dawnay Day Quantum. "But taking a three-to-five year view, I would be a buyer of oil below $60.