Brent crude fell below $106 Friday, extending the previous session's plunge, on renewed fears of weak demand following a slew of lackluster data from the world's top oil consumer, the United States.
Brent slipped to as low as $105.80, after breaking below the 200-day moving average to settle at $106.99 on Thursday. Prices dropped $1.09 to $105.90.
The contract is poised for a 2 percent fall this week and has slipped almost 10 percent this month, the worst since a 15 percent drop in May 2010.
U.S. crude fell as low as $80.38 a barrel and traded $1.92 a barrel lower at $80.46. The contract is headed for a fourth straightly weekly loss, down some 5.5 percent.
It has lost 16 percent so far this month, the steepest since December 2008.
This short-term downturn is not done yet. It could take WTI 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, Tony Nunan, a risk manager with Mitsubishi Corporation in Japan, told Reuters.
What could turn the situation around is if OPEC tightens supply. The question is at what price trigger it will do that.
Brent oil could extend the current fall to $105.24 per barrel, while U.S. oil is expected to slide more to $78.85 per barrel, as the bearish momentum is strong, said Reuters market analyst Wang Tao.
The Reuters-Jefferies CRB .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 U.S. triple-A credit rating.
Investors continued to flee riskier assets in favor of safer havens amid the turmoil, with gold prices hitting record highs on Friday, while Asian stocks tumbled as much as 4 percent.
The selling came after data showed factory activity in the U.S. Mid-Atlantic region in August fell to the lowest level since March 2009. The data from the Philadelphia Federal Reserve Bank is viewed as a forward-looking indicator of national manufacturing.
An unexpected fall in existing U.S. home sales in July and a greater-than-expected rise in new claims for jobless benefits in the latest week added to growing fears that the U.S. economic recovery could stall and slide into recession.
The threat of a double-dip recession is made all the more real by the belief that policymakers have few options left in their toolboxes to boost the economy. QE3 is one of them and likely on the rise after yesterday's data, said MF Global analyst Tom Pawlicki in a research note on Friday.
In Europe, renewed fears that 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 U.S. dollar loans.
Supporting sentiment were comments by Chinese Vice President Xi Jinping that the world's No. 2 economy will not experience a hard landing.
Xi told reporters at a roundtable meeting that China hopes Washington will ease trade restrictions and provide fair treatment to Chinese firms.
Implied volatility in the oil market soared on Thursday, with the Chicago Board Options Exchange's Oil Volatility Index .OVX hitting its highest level in more than a week, snapping a steady downtrend.
The U.S. dollar was holding modest gains in Asia on Friday, as the weak U.S. economic data and concerns about European banks sent skittish investors piling into Treasuries.
Developments in the oil-producing countries of Libya and Syria could also change the direction of the market, analysts said.
Libyan rebels seized an oil refinery in the city of Zawiyah and took control of Sabratha further west on the main highway from Tripoli to Tunisia on Thursday, further isolating Muammar Gaddafi's stronghold.
The situation in Libya is looking like the beginning of the end. Actual supplies will take some time to come on to the market, but if there is peace and a chance for supplies to return there could be a surprise to the downside, said Nunan.
The United States and European Union called on Syrian President Bashar al-Assad to step down on Thursday and U.S. President Barack Obama banned U.S. imports of Syrian oil as part of a wider sanctions effort.
While U.S. sanctions will make it very difficult for banks to finance transactions involving Syrian oil exports, the EU is unlikely to pursue similar actions.
EU leaders have thus far resisted efforts to impose sanctions on the country's energy sector. Their opposition probably partially stems from the fact that the European refineries have already been hard hit by the loss of Libyan volumes, said analysts at Barclays Capital in a report.
The impact on global oil markets from a potential shutdown of Syria's 380,000 barrels per day oil industry would be relatively small compared to the impact of a supply loss from Libya. Around 1.6 million barrels per day (bpd) of Libyan crude production has been cut by a six-month civil war.
Syria exports around 150,000 bpd, with Germany, Italy, and France taking in almost all of the country's shipments last year, Barclays Capital said.
(Additional reporting by Manash Goswami; Editing by Himani Sarkar)