Oil fell after speculation that U.S. fuel supplies will rise along with warm weather as concern over the nation's economic slowdown grows.

Inventories of distillate fuel and gasoline rose last week, according to reports. The U.S. National Weather Service forecast predicts warmer than average temperatures between December 17 to December 23 in the Northeastern U.S., a key region for heating demand.

Oil for delivery in January fell 46 cents to $87.82, down 0.52 percent at 1:08 p.m. on the New York Mercantile Exchange. Brent crude trading on the ICE Futures Europe exchange fell 77 cents to $87.61 per barrel at 1:37 p.m.

Concerns about the economy have also started taking hold among some analysts. Morgan Stanley joined Merrill Lynch on Monday in predicting a mild recession to take place in 2008.

Update