Brent crude, an international benchmark used to price oil used in many US refineries, fell US$1.95 to close at US$64.24 in London.
Energy analyst and trader Stephen Schork said he expected that the combination of weak economic news out of Asia and growing global supplies will push oil down further, to below US$60, by the end of the week.
"It's the proverbial 'trying to catch a falling dagger' and I'm not going to try to catch it," Schork said.
Opec said yesterday it expects demand for its crude to fall to 28.9 million barrels a day next year - 400,000 barrels a day less than this year. The cartel's official production target is 30 million barrels a day, which would mean far more oil on the world market than is being consumed.
The group's three largest members, Saudi Arabia, Iraq and Kuwait, are offering oil to Asian buyers at the deepest discounts in at least six years.
"Why should I cut production?" Ali Al-Naimi, Saudi Arabia's oil minister, said in Lima, where he's attending UN climate talks. "This is a market and I'm selling in a market. Why should I cut?"
Paul Horsnell, head of commodities research at Standard Chartered, said Naimi could not change policy within two weeks of an Opec meeting. "They've got to stick it out for at least a quarter to make it obvious that non-Opec can't rely on high and stable prices," Horsnell said.
"If it's clear there's damage done on non-Opec, that's the time they can start calling the dogs off."
Any break in Opec solidarity or price war will lead to an "enormous price-dive shock" that would push oil to US$40 or US$50, said Mohammad Sadegh Memarian, an Iranian Oil Ministry official.
Also yesterday, the US Energy Department reported a surprise increase in US crude supplies of 1.5 million barrels last week. Analysts were expecting a decline of 2.2 million barrels. Petrol stocks also increased more than expected.
Falling oil prices are making for sharply lower prices of petrol, diesel, jet fuel and heating oil, giving consumers, shippers and airlines a lift.
Economists say lower petrol prices act like a tax cut, leaving more money in consumers' pockets to spend on other things.
Lower oil prices are taking their toll on oil producers, though, sending company shares plummeting and forcing companies to cut spending.
BP said it would aim to cut costs by US$1 billion ($1.28 billion) next year, a move that would likely involve significant job cuts. "As great as it feels to pump US$2 [a gallon] gasoline at the station, it's not a healthy environment for financial assets," said Walter Todd, who oversees about US$1 billion as chief investment officer for Greenwood Capital Associates. "It's rare to see commodity prices fall this quickly in a non-recessionary situation. You really need to see some stabilisation."
The selloff sent the MSCI All-Country World Index to its biggest drop in two months. The Standard & Poor's 500 Index lost 1.6 per cent, Canadian stocks plunged to the lowest since February and emerging-market shares fell to an eight-month low.
Traders are almost certain that Venezuela will teeter into default as bonds plunge to a 16-year low and the cost of default protection soars to a record. A measure of risk in the US junk-bond market rose the most in two months.
All 10 major industries in the S&P 500 slumped at least 1 per cent yesterday.
"There's nothing like human emotion to take over in the short term and fear is taking over, it looks like this really is a slowdown," said Ron Weiner, president and chief executive officer of RDM Financial Group.
Banks, capital goods makers and technology companies helped lead declines yesterday as the S&P 500 slid the most in two months and reached a five-week low.
"For the energy stocks, it's like there's no bottom," said Terry Morris, a senior equity manager at National Penn Investors Trust Co.
"Because it's year-end and so many money managers are lagging the index, they have no interest in buying energy between now and year-end. Energy might not start to turn around until January."
Morris added that "it's probably a decent buy if you have patience".
- AP, Bloomberg
