Oil falls below $78, a 13-month low, on global slowdown

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. - usatoday