* Brent, WTI drop over 3 pct before recovering slightly
* Iraq may raise southern oil output to 4 million bpd
* Saudi's oil, gas investment pledge also weighs on prices
* U.S. crude inventory likely to have risen last week - poll
* Investors eye Fed meeting on Tuesday-Wednesday
(Adds more details and updates prices)
By Meeyoung Cho
SEOUL, Jan 26 (Reuters) - Crude futures dropped below $30 a
barrel on Tuesday, extending the previous day's losses by more
than 3 percent, as persistent worries about oversupply and more
signs of a Chinese economic slowdown spooked the market.
Data showed China's annual rail freight volume, a key
economic indicator, fell 11.9 percent in 2015, versus a drop of
3.9 percent in 2014, adding to concerns of contracting economic
activity and weighing on oil prices.
Brent crude LCOc1 fell $1.13 to $29.37 a barrel by 0824
GMT, after hitting a session low at $29.27 a barrel, after
settling down $1.68 in the previous session.
U.S. crude CLc1 fell $1.03 to $29.31 a barrel, after
hitting a low of $29.25. It fell $1.85 a day earlier.
"Technical short-covering and a cold spell in the United
States and some parts of the northern hemisphere had helped
prices rally temporarily, most of which was wiped out if you
look at yesterday's prices," said Kang Yoo-jin, a commodities
analyst at NH Investment and Securities based in Seoul.
"Psychological factors have driven the severe volatility in
the market," added Kang, who said the situation was likely to
persist until concerns over oversupply were lifted.
The Organization of the Petroleum Exporting Countries (OPEC)
cannot cut its oil output when producers from outside the group
are raising their supplies, Kuwait's OPEC governor said on
Tuesday, adding that both sides should work together to
stabilise the oil market.
OPEC-member Iraq may further raise output this year to as
high as 4 million barrels per day (bpd) from the country's
south, a senior Iraqi oil official said. Currently production is
around 3.7-3.8 million bpd.
At the same time, Saudi Arabia, the world's top oil
exporter, is determined to protect or expand its market share.
Saudi Aramco's chairman said the firm was continuing to invest
in oil and gas production capacity.
All the new production may mean low oil prices could stay
for a longer time, Kuwait Petroleum Corp Chief Executive Officer
Nizar al-Adsani said on Tuesday.
Investors are now closely watching the U.S. Federal Reserve
policy meeting starting later in the day, the first since the
central bank raised interest rates in December, for clues on the
movement of the dollar.
The Fed is expected to take notice of the macroeconomic
headwinds and go easy on hiking U.S. interest rates further,
dragging on the dollar and supporting demand for commodities
priced in the greenback.
"The weakening of the global economy is weighing down not
only on the U.S. Federal Reserve, but also the ECB who are
planning to act in March. This also means that the USD may not
maintain strong after the meeting, which may give some support
for oil prices," Daniel Ang at Phillip Futures said.
In the United States, commercial crude and gasoline
inventories probably rose last week, while distillate stocks
likely fell, a preliminary Reuters survey showed. EIA/S