Oil prices fell sharply Monday along with global stock markets as hopes for a quick end to the global slump evaporated amid dismal U.S. economic news and the prospect of another bailout for ailing insurer American International Group Inc, AP reported.
By mid-afternoon in Europe, benchmark crude for April delivery was down $2.53 to $42.23 a barrel on the New York Mercantile Exchange. The contract fell 46 cents on Friday to settle at $44.76.
In London, the price for Brent crude fell $2.18 to $44.17 a barrel on the ICE Futures exchange in London.
In another sign that the U.S. financial crisis continues to sap the government's coffers, AIG will receive up to $30 billion in additional federal assistance. The company previously received about $150 billion in loans from the government, which holds an 80 percent stake.
The Commerce Department said Friday that gross domestic product contracted 6.2 percent in the fourth quarter, the worst showing in a quarter-century.
"The fourth quarter GDP data out of the U.S. was simply terrible," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "It's the economic reality that's correcting oil prices."
Investors are concerned demand for oil will continue to weaken amid the worst global slowdown in decades. Prices could fall to $25 a barrel within the next three months, said Alan Plaugmann, head of futures and options trading at Denmark-based Saxo Capital Markets.
"We expect another leg down from here," Plaugmann said. "Consumer demand is in a downward slope. I don't think we'll bring ourselves out of recession for at least three to five years."
Stock markets in Asia and Europe, which often are seen as a guide for oil prices, fell across the board Monday, as Hong Kong's Hang Seng index closed down 3.86 percent and Tokyo's Nikkei 225 lost 3.81 percent.
London's FTSE 100 was off 3.9 percent by mid-afternoon, while the CAC 40 in Paris lost 3.2 percent and the DAX in Germany shed 2.4 percent.
Iran's Oil Minister Gholam Hossein Nozari said OPEC doesn't plan to cut production at its next meeting on March 15, state news agency IRNA reported Sunday.
Leaders of the Organization of Petroleum Exporting Countries have for weeks said the group would likely add to 4.2 million barrels a day of output cuts pledged since September.
"It's too early to say what they'll do, but more of the OPEC chatter points to the possibility of cutting," Shum said.
Many OPEC countries rely on oil revenue to fund their budgets, and leaders of the 13-member cartel have said they would like prices to rise to $70 a barrel. Higher oil prices, however, could choke off economic growth.
"OPEC is confronting a dilemma," Shum said. "Assuming these cuts eventually work and prices go up, OPEC could prolong this global economic downturn."
Analysts are also split about how strongly OPEC members have complied with the announced cut.
Britain's KBC Market Services said market estimates of a 90 percent compliance rate were too generous and put the real rate as nearer to 70 percent, a "decent effort," but possibly insufficient as more negative data about the global slowdown emerges.
"Yet again the economic goalposts are moving, and yet again in the wrong direction," KBC said.
JBC Energy in Vienna estimated OPEC's compliance rate at 67 percent in January and saw it rising to 90 percent in March.
In other Nymex trading, gasoline for April delivery fell 5.8 cents to $1.3315 a gallon, while heating oil declined 4.82 cents to $1.2193 a gallon and natural gas for April delivery gained 13 cents to $4.207 per 1,000 cubic feet.