Oil prices plunged below $90 a barrel Monday, coming within reach of year-ago levels as a widening financial maelstrom spreads overseas and crimps global demand for energy.
A barrel of oil has not been this cheap in eight months, suggesting that the climate in which oil prices soared is coming to an abrupt end.
Crude's stunning fall comes just three months after prices surged close to $150 a barrel. Investors appeared to have little faith that the $700 billion U.S. rescue plan will be a quick fix for the stumbling economy.
Light, sweet crude for November delivery fell $6.07, or 6.4 percent, to settle at $87.81 a barrel on the New York Mercantile Exchange. It was crude's fourth straight negative session and its lowest settlement since Feb. 6.
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Oil prices have tumbled 40 percent since peaking at $147.27 a barrel on July 11. A drop below $85 a barrel – an almost certainty in the current environment – would leave prices where they were in late October, wiping out all of the past year's massive gains.
“The market is finally acknowledging that this credit crisis is a global phenomenon and that will equate to lower world oil demand in the future,” said Phil Flynn, analyst at Alaron Trading Corp. in Chicago. “People thought the crisis would be contained to the U.S. and we'd see oil demand in China and India continue to grow. Now that just doesn't seem possible.”
World stock markets plunged Monday amid growing investor anxiety that the U.S. debt crisis is enveloping Europe. Germany announced a bailout package Sunday totaling $69 billion for Hypo Real Estate, the country's second-biggest commercial property lender. Ireland, Iceland, Denmark and Greece moved quickly to guarantee bank deposits to ease consumer anxiety.
The Dow Jones industrial average fell below 10,000 for the first time in four years, losing more than 300 points.
The widening scope of the crisis has forced consumers and businesses everywhere to cut back on fuel consumption. In India, domestic oil product sales totaled 2.41 million barrels per day in August, the lowest level this year, while Japan's oil demand fell by 8.4 percent in the same month, according to Barclays Capital research. In the same month.
In the U.S., the drop in crude prices continued to drag down pump prices. A gallon of regular shed 2 cents to a new national average of $3.504, according to auto club AAA, the Oil Price Information Service and Wright Express. Prices peaked at $4.114 on July 17.
If crude prices continue their slide, gasoline could fall back below $3 a gallon as early as next month, said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J. But consumers may not feel much relief given the whirlwind battering the economy.
“I don't think you can get excited when the reason for lower prices is recession,” Kloza said. “After people look at their 401(k) statements, $3 gas isn't going to look that great.”
Oil market traders are now watching to see if oil prices will sink to the next key technical level of $85 a barrel, the price for a barrel of crude when it began its historic run-up late last year.
“If we take out that area, we could see a major washout of this market,” Flynn said. “We could be talking $50 or $60 oil.”
If that happens, analysts say the Organization of Petroleum Exporting Countries may to cut production and keep prices from falling further.