U.S. crude closed at $86.59 a barrel, dropping to $84.63 in post-settlement trade, as the Dow Jones Industrial Average fell below 9,000.
In addition to the financial crisis, analysts say another factor in the fall of crude prices were reports from the Energy Information Administration that U.S. gasoline and crude stocks rose sharply last week, as demand continued to slow thanks to the economic crisis and high fuel costs.
In its Short-Term Energy Outlook released this week, the EIA said that absent a major worldwide economic downturn that significantly impacts global demand (and at this point that looks like a big "if"), it projects West Texas Intermediate crude oil prices will average about $112 per barrel in both 2008 and 2009.
Strong global demand and low surplus production capacity contributed to the run-up to record crude oil prices in July. The current slowdown in economic growth is contributing to the recent decline in oil demand and the sharp decline in prices since July, EIA says. Nonetheless, oil markets are expected to remain relatively tight because of sluggish production growth.
The EIA also said that although oil prices are expected to be up slightly on average next year, on-highway diesel fuel retail prices are projected to average $3.91 per gallon in 2009, down from a projected $4.01 per gallon in 2008.
Just two months ago, it its August report, the EIA was predicting that diesel fuel retail prices would increase to an average of $4.27 per gallon in 2009.
OPEC will hold an emergency meeting next month to discuss the impact of the financial crisis, which is partly responsible for oil prices falling from their record high of more than $147 a barrel in July.