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New York oil prices dived by more than four dollars on Monday, mirroring sharp falls on global stock markets amid growing expectations that energy demand will weaken further, dealers said.
New York's main futures contract, light sweet crude for delivery in April, slumped 4.34 dollars -- or nearly 10 percent -- 40.42 dollars a barrel.
In London, Brent North Sea crude for April shed 3.87 dollars to 42.48 dollars.
World equity markets fell heavily on Monday, hitting fresh multi-year lows after news of another massive bailout for key US insurer AIG and a huge cash call at banking giant HSBC.
Dealers said the news on AIG and HSBC seemed to be the final straw for many investors, especially given the British-based bank's reputation for financial probity and caution, highlighted by its refusal to take government funding.
"It definitely doesn't bode well for energy demand," said Phil Flynn, an analyst at Alaron Trading Corp, cited by Dow Jones Newswires.
The oil market is particularly concerned about recession in the United States, the world's biggest energy consuming nation, and the effect is it having on demand.
"The momentum of economic data is looking down ... the GDP numbers brought the reality that the (US) economy is weak," said Tony Nunan, assistant general manager of the risk management office at Mitsubishi Corporation.
Data last Friday showed a 6.2-percent fourth-quarter contraction in gross domestic product, much worse than the 5.4 percent annual rate expected by most analysts and the sharpest contraction since the first quarter of 1982.
Oil prices had risen last week in anticipation of increasing demand for motor fuel and indications of output cuts by the Organization of the Petroleum Exporting Countries, traders said.
OPEC, which pumps about 40 percent of the world's oil, announced in late 2008 output cuts of 4.2 million barrels per day in a bid to reverse tumbling prices and members look to be sticking to the planned reductions.
"Continued concerns over the state of the global economy and consequently demand for energy are likely to be balanced by good compliance from OPEC and the possibility of another production cut when the group meets in Vienna later this month," energy consultancy John Hall Associates said in a note.
"Therefore, we are minded to keep our forecast range unchanged at 40.00-45.00 dollars a barrel," they said.
Oil prices are more than 100 dollars below record highs reached last July when concerns about supply disruptions had sent them rocketing above 147 dollars.
They have since tumbled as demand for energy dries up globally due to the worldwide recession.
