Oil extends slide below $130 on demand worries and Iran

By Richard Valdmanis

NEW YORK (Reuters) - Oil dropped by $5 on Thursday, extending a decline of about 12 percent from last week's record on worries over U.S. demand and easing political tensions between Iran and the West over the OPEC producer's nuclear program.

Oil's slide marks the biggest three-day loss in the market in percentage terms since December 2004, and the biggest three-day loss in dollar terms since oil futures started trading in New York in 1983.

The sell-off has been a boon to world stock markets that have recovered some ground after getting hard-hit in recent months by mounting fears over inflation and the health of the banking sector.

U.S. crude settled down $5.31 at $129.29 a barrel, the lowest since early June, adding to more than $10 of losses over the previous two days that have brought prices further from Friday's all-time peak of $147.27 a barrel. London Brent crude fell $4.74 to settle at $131.07 a barrel.

Despite the losses, oil prices remain up nearly 30 percent so far this year, and more than sixfold since 2002, driven by surging demand from developing economies in Asia and worries that world production growth won't be able to keep pace.

Dealers said the bulk of the downward push on crude oil in recent days has been concern that economic trouble in the United States was cutting deeply into demand for fuel in the world's biggest energy consumer.

"Consumers are being pinched between higher costs for necessities and lower real wages. The end result is falling demand almost across the board," said Peter Beutel, president of Cameron Hanover.

A U.S. government report on Wednesday showed that U.S. oil product demand over the past four weeks was running 2 percent below a year ago, a sign soaring pump prices were hitting consumption.