Oil fell for a third day on Thursday, plumbing a 13-1/2 month low near $72 as commodity investors again rushed for the exit on fears of a collapse in demand growth, with the world economy tilting toward recession. Bleak US economic data and warnings from the US Fed that tough times are not over led Wall Street and Japan's Nikkei to their worst day since the 1987 stock market crash, wiping out earlier optimism fed by government steps to avert a financial meltdown.
US crude for November delivery fell $2.44, or 3.3 percent, to $72.10 a barrel by 0615 GMT. The front-month contract has lost nearly a third in value in three weeks, the steepest such decline since it began trading in 1983.
London Brent crude fell $2.31 to $68.49. "The oil markets are now highly correlated to the stock markets. Everyone now uses the stock markets to gauge the health of the economy," said Clarence Chu at US-based options trader Hudson Capital Energy.
Crude now stands more than 50 percent off its July peak above $147, and analysts have scaled back global demand growth estimates after a recent slew of gloomy data that has overshadowed Opec's talk of possible production cuts and a hurricane that is disrupting Carribean refining operations.
Japan's crude oil inventories hit a 14-month high last week as crude runs stayed low, in part due to slack domestic demand, industry data showed on Thursday. J.P. Morgan cut its average oil price forecast for 2009 to $74.75 a barrel, and the Organisation of the Petroleum Exporting Countries also reduced its forecasts for world demand for crude next year in its latest monthly report. The cartel meets in November in Vienna to assess the global financial crisis's effect on the oil market, with growing expectations it will want to lend support to a market that has been swept up in the deleveraging across commodity markets.