Oil prices lower on fallout from global credit crunch fears

SINGAPORE (AFP) - Oil prices fell in Asian trade Thursday as investors fret over the economic fallout from the turbulence swirling in the global financial markets, dealers said.

Investors fear US energy demand could be hit if the financial turmoil, which started with the troubled US subprime mortgage crisis, starts to crimp growth in the world's biggest economy, they said.

At 10:50 am (0250 GMT), New York's main contract, light sweet crude for September delivery, dropped 53 cents to 72.80 US dollars from 73.33 dollars in late US trades Wednesday.

Brent North Sea crude for September delivery dropped 66 cents to 70.98 dollars.

"What's happening this morning has more to do with the global risk aversion," said Dariusz Kowalczyk, a Hong Kong-based senior investment strategist with CFC Seymour.

"So risk aversion means that risky assets like commodities are shunned... they have a higher volatility and investors reduce exposure to them in times of high volatility in the market," he said.

Kowalczyk said investors were reducing their exposure in the oil market on concerns that "demand for commodities will decline" should the US economy and global growth stalled.

In early Thursday trade, most Asian stocks were sharply lower with sharp losses in Tokyo, Hong Kong, Seoul and Singapore as investors' confidence took a beating from Wall Street's overnight plunge.

US stocks closed sharply lower Wednesday on credit fears despite the Federal Reserve's seven-billion-dollar cash infusion to boost liquidity in the financial system.

Analysts said the Fed's latest move to pump funds into the US banking system had done little to calm investor jitters over tightening global credit.

Separately, the US Department of Energy said Wednesday that crude inventories had slumped by 5.2 million barrels last week -- more than double a fall of 2.5 million forecast by analysts.