Oil fell over 5 percent on Monday as further indicators of falling global demand linked to a potential recession offset Opec plans to reign in output. US crude fell $3.65 to $64.16 a barrel by 12.57 EST (1757 GMT). London Brent crude dropped $4.18 to $61.14.
US factory activity - a barometer for future oil demand - contracted sharply in October, falling to its lowest in 26 years as the financial crisis racked the world's largest economy. The Institute for Supply Management said its index of national factory activity fell to 38.9 in October from 43.5 in September. A reading below 40 is exceptionally weak.
"The most devastating blow for crude oil today is data showing that US manufacturing activity in October fell to the lowest level in 26 years, which means more worries for oil demand," said Phil Flynn, an analyst at Alaron Trading, in Chicago."Manufacturing used to be a great forward indicator for oil demand, but if the manufacturing sector is down, it will be a struggle to keep oil demand up," he added.
Profits evaporated at leading banks on Monday and authorities world-wide pressed on with efforts to temper a recession that policymakers said had become reality for much of the globe. French Bank Societe Generale reported an 83.7 percent drop in third-quarter net profit and Germany's second largest bank Commerzbank said it would take an 8.2 billion euro capital injection from the state and another 15 billion to secure refinancing.
Ford Motor Co's US sales for October were down 30.2 percent on last year, with Chrysler, Nissan and Volvo all reporting slumps year on year. Analysts said traders would now be looking for signs that Saudi Arabia was cutting back its crude production in line with Opec's agreement in October to reduce output by 1.5 million barrels per day (bpd). October saw the steepest monthly price decline ever for oil as global demand slowed.
In three months, oil has wiped out gains that took more than a year to build. It is down more than half since prices struck a record $147.27 a barrel on July 11, as poor economic data added to pressure from weak demand reports in the United States and other key consumer nations. Societe Generale said on Monday it had lowered its oil price forecasts as global oil demand was likely to weaken further.
The bank expects US crude to average $72.50 a barrel next year. Its previous forecast was $114.17. Opec members have no choice but to implement agreed output cuts and inform customers of the reductions if they want a stable oil price between $70 and $90 a barrel, Opec President Chakib Khelil said on Sunday. Khelil said Saudi Arabia was the key to the success of the reductions, and if the world's biggest oil exporter took its time over the operation, the oil price could be affected.