Oil prices fall as financial turmoil goes global

A barrel of oil has not been this cheap in eight months, suggesting that the climate in which oil soared to unheard of levels 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 provide a quick fix for the stumbling U.S. 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.

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.