NEW YORK -- The stunning collapse in oil markets accelerated Friday, with a barrel plunging below $78 as investors grow more pessimistic about a mushrooming global economic crisis.
A barrel of oil hasn't been this cheap in 13 months — a rare silver lining for consumers amid a rapidly imploding financial landscape.
Crude's steep losses came as Wall Street headed for its worst weekly drop ever. The Dow Jones industrial average fell as much as 700 points earlier in the day but swung in and out of positive territory as investors grappled with whether the market has finally hit a bottom.
"There's so much fear out there and that's really gripping the oil market. People are just afraid to hold a position so they're closing out and selling off," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Mass.
Light, sweet crude for November delivery fell $8.63 to settle at $77.99 a barrel on the New York Mercantile Exchange. It was the lowest settlement price for a front-month crude contract since Sept. 10, 2007.
Crude has now lost 47% of its value since hitting a record $147.27 on July 11 as a deepening credit crisis sparked by the subprime mortgage fiasco wreaks havoc around the globe and drives down energy demand.
Investors have shrugged off an array of market-stabilizing efforts by world governments, including a $700 billion U.S. financial rescue plan, several bank bailouts and a coordinated interest rate cut by the Federal Reserve and central banks around the globe.
Underscoring Americans' waning appetite for fuel, a gallon of regular gasoline dropped 5.3 cents overnight to a national average of $3.35 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express.
Prices dipped below $3 a gallon on average in Kansas, Missouri and Oklahoma. If crude keeps falling, the rest of country should see sub-$3 gasoline in the next few weeks if not sooner, experts say.
Oil market traders got more proof that energy demand is falling away across the globe.
The International Energy Agency on Friday cut its global oil demand forecasts for this year and 2009, pointing to the worsening economic conditions and the tight credit supply.
The energy watchdog cut its forecast for oil demand this year by 240,000 barrels per day, and slashed its 2009 forecast by 440,000 barrels per day. The IEA now expects global oil demand to total 86.5 million barrels per day this year and 87.2 million barrels per day next year.
"The fundamental game for oil has changed. In the last decade, oil went up because of strong global economic growth. That story for the near term is over, so everybody has to re-evaluate," said Phil Flynn, energy analyst at Alaron Trading in Chicago.
OPEC signaled it may tighten output to put a floor under falling prices, but it didn't seem to matter.
The Organization of the Petroleum Exporting Countries said Thursday it will hold a special meeting Nov. 18 to discuss how the economic crisis is affecting oil prices. The head of Libya's national oil company, Shukri Ghanem, called on oil producing nations to cut output.
Many doubt that an OPEC cut would reverse the extreme downward momentum on oil. OPEC's decision last month to cut production by 520,000 barrels a day did little to stop the losses.
Flynn said another output cut "may actually accelerate the slide."
"What's driving this market right now is fear of demand destruction and lack of credit," he said. "If you can't borrow money to buy crude, then demand falls more and so do prices."