Oil drops to $77.70 a barrel

Oil prices dropped 10 per cent yesterday and touched 13-month lows in a flight from risk amid concerns of a worldwide recession and further signs of slumping energy demand.

The International Energy Agency slashed its estimate of worldwide 2008 oil demand growth to its lowest rate since 1993, and lowered its 2009 growth forecast by 190,000 barrels per day.

US, Asian and European stock markets tumbled amid the ebbing appetite for risk.

US crude plunged $8.89 to settle at $77.70 a barrel after hitting $77.38, the lowest level since September 10, 2007. London Brent crude settled down $8.57 to $74.09 a barrel.

"At this point, margin calls are certainly a pressure factor in the crude oil market," said Jim Wyckoff, president of jimwyckoff.com, which provides commodities markets commentary.

"Some hedge funds, which are taking losses in other markets, are being forced to liquidate other holdings, such as those in the energy markets."

The Reuters-Jefferies CRB index, a global commodities benchmark, fell to a 20-month low as investors who had flocked into commodities this year shed positions in crude and other raw materials markets.

Markets were eyeing a meeting of finance ministers and central bankers from the Group of Seven nations this weekend in Washington.

Slumping demand in the US and other developed economies has sent oil prices off their peak above $147 a barrel in July, after surging consumption in emerging markets such as China sent commodities on a six-year rally.

The price fall has caused some members of the Organisation of Petroleum Exporting Countries to call for a cut in production levels, and the cartel has agreed to hold an emergency meeting in Vienna on November 18 to discuss the impact of the global financial crisis on the oil market.