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NEW YORK: Oil prices slumped below 80 dollars a barrel on Tuesday as euphoria about international bank rescue efforts gave way to concern about the health of the global economy, analysts said.
New York's main contract, light sweet crude for delivery in November, closed down 2.56 dollars at 78.63 dollars in New York.
The contract, which had won 3.49 dollars on Monday, had recovered since striking a one-year low last Friday amid fears of widespread financial meltdown.
On Tuesday, London's Brent North Sea crude for November delivery fell 2.93 dollars to 74.53 dollars.
"The government interventions are probably a good step in trying to unlock the credit freeze, but crude oil will gain (significantly) only when there is unlocking of the demand freeze," said Petromatrix analyst Olivier Jakob.
He added: "Clearly, the global investor is finding more ... buying opportunities in equities than in commodities."
Global stock markets staged one of their biggest bounces ever on Monday in the wake of efforts in Europe to shore up ailing banks and unblock the credit freeze.
Stocks rose again on Tuesday in Europe and Asia, with Tokyo posting its biggest-ever rally. Stocks in the US closed lower.
Despite the new optimism on stock markets, most analysts expect the world's advanced economies to fall into recession because of credit restrictions, falling house prices and declining consumer spending.
Economic performance dictates the demand for crude oil, with demand already slowing in advanced economies such as the US and Europe.
"The point is that while the money markets may return to a semblance of normality, the larger economy which it services is still heading towards, if not already in, recession," said analysts at MF Global.
"Demand has suffered and will continue to suffer."
Oil prices were given some support by the weakening US currency, which makes dollar-priced crude cheaper for buyers with stronger currencies and therefore tends to stimulate demand.
The European single currency advanced on Tuesday above 1.37 dollars as the foreign exchange market was also lifted by government assistance for the troubled banking sector, analysts said.
Despite rising this week, crude oil prices remain far below record high points of above 147 dollars per barrel reached in July.
Last week, the OPEC oil producers' cartel announced it would hold an extraordinary meeting in Vienna on November 18, as member countries fret over the effects of the global financial crisis on crude prices.
"Some OPEC members continue to reiterate their stance that OPEC will consider cutting output if demand for oil is indeed lower," added Norrish at Barclays Capital.
The Organisation of Petroleum Exporting Countries' next regular meeting is scheduled for December 17 in Oran, Algeria.
Iran on Sunday predicted that OPEC would cut oil output at its November session. Libya also appealed last week for lower production should crude futures continue to trade at current levels. - AFP/de
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