OIL AND commodities prices collapsed yesterday as investors sold assets on the assumption that the world economy was heading irrevocably into recession.

The International Energy Agency (IEA) said that global oil demand would grow at its lowest rate in 15 years, with the risk of the financial crisis tipping rich countries "into outright recession".

US oil futures tumbled to $78.61 a barrel, down almost $8 on the day and their lowest level since October last year. In late afternoon, oil was down $6.74 at $79.85. The Reuters-Jefferies CRB index, a broad measure of raw materials prices, fell 4.25 per cent to its lowest level in 20 months.

"A global meltdown is depressing market values at an unprecedented rate," said Robert Laughlin, a commodities analyst at MF Global in London.

The Baltic Dry Index, a measure of the cost of shipping bulk commodities such as iron ore, grains or cement, fell 11.3 per cent - its biggest daily drop - as the slowdown in demand for commodities and difficulties in obtaining credit to back shipments almost halted trading of some raw materials.

The IEA, western countries' energy watchdog, cut its forecast for oil consumption this year to 86.5 million barrels a day, about 250,000 fewer than it said last month. It also cut its 2009 forecast 450,000 below its previous one.

"Weak baseline summer demand in the main OECD consuming countries in the face of higher prices is now being perpetuated by weakening economic prospects and, most recently, by a spiralling liquidity crisis, which risks tipping OECD economies into outright recession," the IEA said in its monthly oil market report.

The drop in oil prices in spite of Opec's call for an emergency meeting earlier this week suggested that the market was firmly focused on the impact of the financial crisis on global economic growth and energy demand next year, rather than the cartel's action. 

(Financial Times service)