Oil tumbled more than $4 to a one-year low on Friday as growing fears that financial market turmoil will squash demand for fuel outweighed the possibility of an Opec production cut at an emergency meeting in November.
Commodities have been punished along with stock markets as investors fear that government invention and a first round of rate cuts will fail to stave off a global recession as the financial crisis marches resolutely into a second month.
Investors, who earlier this year piled into oil and other commodities as a hedge against inflation and the weak dollar, are cashing out in search of safer havens. The Nikkei index .N225 plunged nearly 10 percent on Friday.
US light crude for November delivery fell $4.19 a barrel to $82.40 by 2:17 a.m. EDT, taking its losses over the past two weeks to 23 percent - the biggest two-week sell-off since prices tumbled at the start of the 2003 war in Iraq.
Prices edged up from $82 earlier in the day, the lowest in a year, as stock markets came off their lows, but have still fallen more than $60 from its record high above $147 in July.
London Brent crude shed $3.58 to $79.08 a barrel, falling below $80 for the first time in a year.
"The oil market fall-out from credit issues leads us to become considerably more pessimistic about both short-term demand and medium- and long-term supply," analysts at Barclays Capital, a long-time market bull, said in a note to clients.
In the latest in a series of dramatic global efforts to restore faith in the financial system, the United States is considering guaranteeing billions of dollars in bank debt and temporarily insuring all US bank deposits, the Wall Street Journal reported on its Web site.
That follows a round of global interest rate cuts earlier this week that failed to stem a dramatic slide across markets.
Investors will this weekend look to Washington, where finance ministers and central bankers from the Group of Seven nations will meet amid expectations that the group will present a united front on policy to contain the crisis.
Following calls from OPEC ministers this week for action to halt a slide in oil prices, the Opec said it would hold an emergency meeting on November 18 in Vienna to discuss the impact of the financial crisis on the oil market.
"Opec appears to be scrambling to put in another, firmer floor at $80," said Jonathan Kornafel, Asia director of US based options trader Hudson Capital Energy.
"The market may still overshoot on the downside regardless of what OPEC does, as financial flows continue to pour out of commodities," he added.
The International Energy Agency (IEA) releases its monthly report on the oil market at 0900 GMT, and investors are expecting another cut in demand expectations for this year and next.
The slumping economy has already prompted analysts to revise downwards their global oil demand growth target, with the U.S. Energy Information Administration this week cutting its 2009 projection by 140,000 barrels per day.-Reuters