LONDON: Brent crude fell below $106 on Friday, extending the previous session’s plunge after weak economic data added to expectations the world could be heading into a double-dip recession that would sap oil demand.
Brent was trading at $105.75 a barrel by 0829 GMT, off a session low of $105.06. A day earlier it fell by about three percent.
US crude sank $2.53 to $79.85 a barrel, up from a low for the day of $79.17.
"This short-term downturn is not done yet. It could take WTI (US crude) to as low as $75. The fundamental picture is not that bad, but if the overall economy remains weak it is very hard to make a case for a bull run in oil," said Tony Nunan, a risk manager with Mitsubishi Corporation in Japan.
"What could turn the situation around is if OPEC tightens supply. The question is at what price trigger it will do that."
Brent is poised for a more than 2 percent fall this week and has slipped 10 percent this month, the most since a 15 percent drop in May 2010.
Technical analysis based on charting previous market performance pointed to further falls.
For Brent, the near-term technical target on the downside was $105.24 per barrel, already briefly broken on Friday, while strong bearish momentum could push US crude to $78.85 per barrel, said Reuters market analyst Wang Tao.
The drop in oil prices coincides with a wider market sell-off as investors have fled riskier assets for safer havens, such as gold, which has scaled a series of records.
The Reuters-Jefferies CRB , a global benchmark for commodities, fell more than 2 percent on Thursday — its largest daily decline since Aug. 8, when energy, metals and agricultural markets slumped following the Standard & Poor’s downgrade of the US triple-A credit rating.
Weak US data
The latest round of selling took its cue from US data on Thursday that showed factory activity in the US Mid-Atlantic region in August fell to the lowest level since March 2009.
An unexpected fall in existing US home sales in July and a greater-than-expected rise in new claims for jobless benefits in the latest week added to anticipation that the US economic recovery could stall and slide into recession.
In Europe, renewed concern the euro zone debt crisis could infect the region’s financial system put pressure on short-term funding markets, forcing some European banks to pay higher rates for US dollar loans.
Even after the current sell-off, analysts said oil prices were still higher enough to destroy demand in economically fragile consumer countries.
Analyst Olivier Jakob of Petromatrix said demand-side risks were likely to be a bigger factor for now than support from any supply-side risks.
"US crude looks cheap, but in reality oil is still pretty expensive," he said.
"We’re coming out of the gasoline season and looking at the price of heating oil, it’s going to be the most expensive winter ever."
He argued supply disruption from civil war in Libya, which was producing around 1.6 million barrels per day before unrest erupted in February, was factored in.
Any loss of production from Syria, where President Bashar Al-Assad has stepped up military assaults to quash demonstrations against his rule, would be too insignificant to have a major impact, analysts have said.
The initial impact of the loss of production from OPEC member Libya was to drive Brent prices to a peak for the year above $127 a barrel in April.
A Saudi-led proposal to increase OPEC to help calm prices was rejected in June at a meeting of the Organization of the Petroleum Exporting Countries which collapsed without agreement. –Additional reporting by Francis Kan and Manash Goswami in Singapore