Oil prices dropped more than $1 to below $38 a barrel on Friday as the deteriorating global economic outlook stoked concerns that crude demand will continue to shrink. U.S. crude futures for March delivery, which expire on Friday, fell $1.54 to $37.94 a barrel by 1:34 EDT (1834 GMT), after posting the biggest settlement gain since Dec. 31 in the previous session, according to Reuters. Brent crude fell $1.69 to $40.30 a barrel. The losses tracked weakness in U.S. stocks, which fell sharply led by banking shares on fears that a U.S. bank rescue plan might lead to nationalization. Economic news was grim outside the United States as well, with European shares hitting a six-year low as investors fretted about capital increases and bank nationalizations on the back of a deepening economic downturn. The broad Topix index of Japanese shares closed at its lowest level in about 25 years. A rally in gold, a traditional safe haven for investors, to over $1,000 an ounce, its highest since March of last year, also added pressure to oil prices by drawing investors away from riskier markets, dealers said. Oil prices rallied strongly on Thursday, jumping 14 percent after data showing an unexpected draw in U.S. crude stocks. But worries over the health of oil demand have resurfaced, with sentiment dented by sharp falls in equity markets.
