Fears of an economic slowdown in the US, and a consequent spread of the crisis to Europe and other parts of the world, resulted in oil prices falling over 12 per cent since Monday, the largest weekly fall since early 2004.
Industry watchers and government officials expect prices to dip below $90 per barrel and stay weaker in the week beginning October 6 as a financial crisis grips the US, the world's largest consumer of oil products.
Investment bank Merrill Lynch has projected that global crude oil prices will fall to $50 per barrel by end-2009 as a result of lower demand for fossil fuels. Prices were last at $50 per barrel three years ago.
Merrill Lynch was bought by Bank of America after the investment bank reported huge losses as a result of the sub-prime credit crisis.
"It's difficult to say where oil prices will be in the near future. It's just very volatile. But there seems to be consensus that prices will fall in the near future because weakening economies cannot afford to buy oil at higher prices," said a Mumbai-based analyst with a global advisory firm.
Oil futures for November delivery on the New York Merchantile Exchange fell 12 per cent this week to $93.88 per barrel on Friday.
The lower oil prices are a boost to the Indian economy, like all other oil importing economies, as their import bill will fall. However, for India, the depreciating value of the rupee against the dollar has negated the positive impact of the lower oil prices.
The fall in oil prices has been accentuated by a data from the US showing employment falling to five year lows and the International Monetary Fund saying on Thursday that the US may fall into recession.
Data released by the US Energy Department also showed that fuel use in the country averaged 19 million barrels a day in the last four weeks, the lowest consumption since October 2001, Bloomberg News reported.
"Global demand is down, but supply is not yet a worry. This despite the Opec asking Saudi Arabia to cut down oil production by 500,000 barrels a day a month ago," said a senior official in India's petroleum ministry. He, however, said he would not hazard a forecast "as oil prices are influenced by more than just demand-supply economics".
Analysts also project oil prices will fall in the long-term as US Presidential hopefuls Democrat Barrack Obama and Republican John McCain are promising measures to bring down prices.
While Obama advocates bringing down prices by higher use of biofuels and opening up US strategic oil reserves to bring down imports, McCain wants the US, which consumes around 23 per cent of the total crude oil produced in the world, to allow drilling offshore oil basins to increase supply.
However, the world's oil largest companies - ExxonMobil, Royal Dutch Shell and British Petroleum - are re-entering Iraq's oil fields. The country has also short-listed 41 companies to begin developing proven oil fields. India's flagship oil company ONGC Videsh, along with China's Sinopec and Chinese National Petroleum Corporation are also among the short-listed companies.
Obama had said in a speech in March this year that the price of oil is four times what it was before the US invaded Iraq. "You're paying a price for this war," The Wall Street Journal had quoted the president hopeful as saying on March 20, 2008.
