Crude Oil Drops Below $80 as Equities Slump on Credit Freeze

By Mark Shenk

Oct. 10 (Bloomberg) -- Crude oil fell below $80 for the first time in a year and copper headed for its biggest weekly drop in more than 20 years on concern that the deepening financial crisis will push the global economy into a recession.

Oil in New York is approaching its biggest weekly decline since 2003 as plunging share prices in Asia and Europe caused the MSCI World Index to drop to the lowest since 1970. All commodities with the exception of gold are down on signs that demand for raw materials will drop as the global economy falters.

``No matter where you look, there is bleeding everywhere,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``I don't know where the bottom is. It's clear that we are headed for a painful couple of years.''

Crude oil for November delivery fell $5.17, or 6 percent, to $81.42 a barrel at 9:46 a.m. on the New York Mercantile Exchange. Futures touched $78.61, the lowest since Oct. 9, 2007. Prices have dropped 45 percent from the record $147.27 a barrel reached on July 11.

More than $4 trillion has been erased from global equities this week even as central banks across the world were forced to cut interest rates on concern banks will run out of money.

``This is a market that is moving on emotion, not the supply and demand picture,'' said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. ``We are looking for a landing place, and I have no idea where it is.''

Commodities Tumble

The Reuters/Jefferies CRB Index of 19 commodities tumbled to the lowest in more than a year today. The CRB fell as much as 10.41 to 300.12, the weakest since Aug. 22, 2007. The index has slumped 36 percent from a record on July 3.

The International Energy Agency, an adviser to 28 nations, cut its forecast for global oil demand next year by 0.5 percent as the worst financial crisis since the 1930s threatens a global recession.

The MSCI World Index fell for a seventh day, losing 3.9 percent, and Japan's Nikkei 225 Stock Average slumped 11 percent, the second-biggest drop on record. Europe's Dow Jones Stoxx 600 declined 7.6 percent.

``Oil is not a safe haven, because you have to use it,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Gold and putting money in your mattress look like the safest places to put your money.''

Brent crude oil for November settlement declined $5.19, or 6.3 percent, to $77.47 a barrel on London's ICE Futures Europe exchange. Futures touched $75 a barrel, the lowest since Sept. 11, 2007.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.