Oil Plunges More Than $4 as Equities Slump on Credit Freeze

By Nesa Subrahmaniyan and Nicholas Larkin

Oct. 10 (Bloomberg) -- Oil tumbled more than $4 a barrel, headed for its biggest weekly drop since 2004 and pacing a slump in commodities, on concern the deepening financial crisis will push the global economy into a recession.

Oil in New York fell to its lowest price in a year and copper dropped to a 2 1/2 year low as plunging share prices in Asia and Europe left the MSCI World equity index headed for its worst week since 1970. Gold rose to the highest in nearly 11 weeks as investors sought the metal as a haven.

``Oil markets are again under pressure this morning due to the collapse in overnight global equity'' markets, said Robert Laughlin, senior broker at MF Global Ltd. in London. ``We have panic and fear from financial sectors dominating proceedings. I fear oil prices will not recover until the financial sector sell-off has been exhausted.''

Crude oil for November delivery fell as much as $4.59, or 5.3 percent, to $82 a barrel on the New York Mercantile Exchange. The contract traded at $82.84 at 9:37 a.m. in London. Crude futures are down more than 12 percent this week, and have dropped 44 percent from a record $147.27 a barrel reached on July 11.

``It doesn't look like anybody is putting money into commodities anymore except for gold,'' said Jonathan Kornafel, a director for Asia at Hudson Capital Energy in Singapore. ``You have to sell out what you have, and that's the disaster of this credit crisis. Healthy assets are being sold below value just like unhealthy assets.''

Copper, Zinc

Copper for three-month delivery fell as much as 9.7 percent to $4,800 a metric ton on the London Metal Exchange. The metal is headed for its biggest weekly plunge in more than two decades. Nickel, zinc and aluminum also fell.

Gold for immediate delivery jumped as high as $931.95 an ounce, the highest since July 29. The precious metal, which has climbed 23 percent from its low for the year reached Sept. 11, traded at $923.85 at 9:22 a.m. in London.

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 IEA lowered its 2009 projection by 440,000 barrels a day to 87.2 million barrels a day, the Paris-based agency said today in its monthly report, citing a weaker economic outlook from the International Monetary Fund. Non-OPEC supply growth this year has been ``largely wiped out'' after hurricanes in the Gulf of Mexico and pipeline disruptions in Azerbaijan.

U.S. Demand

U.S. fuel demand averaged about 18.7 million barrels a day during the past four weeks, the lowest since June 1999, according to an Energy Department report on Oct. 8. The figure is down 8.6 percent from the year-earlier period.

The U.S., which consumes 24 percent of the world's oil, is now in a recession, according to a Bloomberg News survey of economists. The economy probably shrank at a 0.2 percent annual pace in the third quarter and 0.8 percent in the last three months of 2008, according to the median estimate of 52 economists surveyed Oct. 3 to Oct. 8.

The Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world's oil, signaled yesterday it may cut output at an emergency meeting on Nov. 18.

OPEC is ``very likely'' to cut oil production at the meeting in Vienna because prices have fallen ``dramatically,'' the group's president, Chakib Khelil, said yesterday. The group had been scheduled to meet next on Dec. 17 in Oran, Algeria.

``OPEC can't fix the problem in the financial markets,'' said Toby Hassall, a research analyst with Commodity Warrants Australia in Sydney. ``They would be very cautious in making any huge cuts in output as they wouldn't want to slow down an already slowing world economy by cutting and push prices up.''

OPEC resolved at its most recent meeting in Vienna last month to stick more closely to official quotas, implying a cut of about 500,000 barrels a day.

Brent crude oil for November settlement declined as much as $4.13, or 5 percent, to $78.53 a barrel on London's ICE Futures Europe exchange, and traded at $78.77 at 9:38 a.m. local time. Prices have fallen 13 percent this week.

To contact the reporters on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net