Oil prices slipped below $71 on Friday, as worries over threats to economic growth from a deepening credit squeeze in global financial markets outweighed forecasts for robust oil demand.
U.S. crude fell 61 cents to $70.98 a barrel by 6:35 a.m. EDT, taking losses from last week's record high of $78.77 to more than 9 percent. London Brent crude fell 37 cents to $69.84.
The crisis in global financial markets triggered by the sub-prime mortgage problems in the United States deepened further on Friday, forcing Asian central banks to join a global campaign to inject liquidity into banking systems.
Asian and European stock markets fell further, after U.S. stocks closed nearly 3 percent lower a day before.
The S&P (index in the U.S.) endured its worst day since February, and European markets are down again today. The sub-prime effect ... continues to weigh on the market, said Tom Nelson, analyst at Guinness Atkinson Asset Management.
Other analysts said commodity markets were finding it increasingly tough to keep their traditional safe-haven status.
Continued downward pressure from both equities and the corporate bond markets will eventually undermine commodity prices and not necessarily revive them, analysts at MF Global said in a report.
The global credit seizures we are witnessing are serious, and, if not broken, will inhibit companies from expanding or engaging in acquisitions ... Higher interest rates demanded by unwilling lenders will exacerbate borrowing conditions and could lead to a noticeable slowing in worldwide growth.
Meanwhile the outlook for demand appeared robust, providing a floor to oil prices. The adviser to 26 industrialized countries -- the International Energy Agency -- said on Friday world oil demand will grow at a faster pace in 2008 than this year and repeated its call for more OPEC oil.
To me, the market still looks tight, said Nelson, adding that the build in OECD oil stocks in the second quarter was smaller than normal at 67 million barrels.
Analysts said oil prices would also find support from OPEC's reluctance to increase output at its September meeting, fuelling concerns of a supply squeeze in the fourth quarter ahead of peak winter fuel demand.
OPEC kingpin Saudi Arabia told customers in Japan and Europe on Thursday that it would keep oil supply levels unchanged in September.
Venezuelan oil minister Rafael Ramirez has also ruled out pumping more oil. He told Reuters on Thursday that world oil inventories were much higher than average and he saw no need to increase crude production.
(Additional reporting by Fayen Wong in Sydney)