Oil drops 10 percent on demand concerns

By Matthew Robinson

NEW YORK (Reuters) - Oil prices dropped more than 10 percent on Friday and touched 13-month lows in a global flight from risk amid concerns of a worldwide recession and further signs of slumping energy demand.

The International Energy Agency slashed its estimate of worldwide 2008 oil demand growth to its lowest rate since 1993, and lowered its 2009 growth forecast by 190,000 barrels per day.

U.S. crude plunged $8.89 to settle at $77.70 a barrel, the lowest levels since September 10, 2007, and down 17 percent from last Friday's settlement. London Brent crude settled down $8.57 at $74.09 a barrel.

"At this point, margin calls are certainly a pressure factor in the crude oil market," said Jim Wyckoff, president of Jimwyckoff.com, which provides commodities markets commentary.

"Some hedge funds, which are taking losses in other markets, are being forced to liquidate other holdings, such as those in the energy markets."

U.S. stocks turned positive at times in the late afternoon after trading lower most of the day in a turbulent session, with analysts citing bets that the finance chiefs of the world's major economies will take coordinated steps this weekend to confront the financial crisis.

Earlier, all three major U.S. stock indexes were sharply lower as panicked investors dumped stocks on fears that frozen credit markets would push the global economy into recession.

The Dow Jones industrial average closed down 128 points or 1.5 percent lower at 8,451.19.