Oil Settles Under $88 on Demand Concerns

Oil dropped more than $6 to below $88 a barrel on Monday on expectations the growing financial crisis will further slow already faltering global fuel demand.

U.S. light, sweet crude traded down $6.07, or 6.5 percent, to settle at $87.81 a barrel after earlier touching $88.89, the lowest level since early February.

London Brent crude fell more than $4 trading at below $86 a barrel.

Crude prices have dropped nearly 40 percent from a peak over $147 a barrel on July 11 as high fuel prices and the growing financial crisis slow oil demand in top consumer the United States and other industrialized nations .

"The prevailing macro sentiment is now crystallizing around the notion that we are heading into a synchronized global slowdown, a mirror image of the across-the-board expansion we saw from 2004 to early 2007," said Edward Meir of broker MF Global.

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Oil demand in the United States, the world's top energy consumer, has slumped this year under the weight of record prices, while consumption in Japan and Europe has also weakened.

Analysts are now eyeing demand from China—which helped fuel a six-year rally in commodities—for signs the crisis is hitting consumption.

The world's second biggest consumer will not import gasoline for the second straight month and instead export the fuel due to heavy domestic stockpiles and a dip in demand.

"I think the market's starting to build this into prices," said Mark Pervan, senior commodities analyst at ANZ. "You would expect the market is now joining the dots and thinking ... this will probably flow through to China."

The U.S. and European governments are trying to underpin the financial sector but this has so far failed to reassure investors.

U.S. stocks fell on Monday, with the Dow diving 400 points to below 10,000 for the first time in four years, as part of a global sell off on investors fears the widening fallout from the credit crisis would drag the economy into recession.

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European shares suffered their worst one-day percentage fall on record, sinking to four-year closing lows while trading in Brazil halted after a 15 percent drop in its benchmark index.

With oil prices sliding, OPEC member Iran said $100 a barrel was too low and urged members of the Organization of the Petroleum Exporting Countries (OPEC) to respect their output targets to prevent oversupply from worsening.

"With the OPEC decision to cut, oversupply could be controlled in the first quarter of 2009," said Oil Minister Gholamhossein Nozari, referring to OPEC's agreement last month. "But if they (OPEC members) do not carry out the cut, oversupply could reach 1.2 million bpd."

OPEC President Chakib Khelil said OPEC would seek to balance the market when it meets in December.

He told Algerian government newspaper El Moudjahid that demand had declined by an estimated three million barrels per day as a result of falling requirements in the main consuming countries, while supply had remained steady.

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