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 Prices were volatile, affected by the second day of sharp global declines in global stock markets Tuesday, and expectations of a cut in interest rates both in the United States and Europe.
Light, sweet crude for February delivery fell $3.31 to $87.26 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe.
The Nymex was closed Monday for floor trade in the U.S. because of the Martin Luther King holiday. February crude futures closed at $90.57 a barrel at the end of last week.
In London, Brent crude futures for March delivery fell $1.59 to $85.92 a barrel on the ICE Futures exchange.
"Investors are factoring in the rising prospect of a U.S. recession," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "That's why we're seeing such a substantial sell-off in the stock markets."
Japan's Nikkei 225 index slid 5.7 percent while Hong Kong's Hang Seng index sank 8.7 percent. In India, trading was halted for an hour after the benchmark index plummeted 10 percent. In volatile afternoon trading, the Sensex index was down 7.2 percent.
Around noon in Europe, London's FTSE 100 Index was up 0.29 percent, the CAC-40 in Paris was 0.1 percent lower and Frankfurt's DAX was 1.85 percent below Monday's close.
"There is blood on Wall Street and given the high correlation seen lately between oil and equities, the risk remains for further downside pressure on oil commodities," said Olivier Jakob of Switzerland's Petromatrix.
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 Oil prices have now retreated over $12 from a record above $100 a barrel early this year on worries a flagging U.S. economy would dampen fuel demand. Prices had gained Friday on hopes that U.S. President George W. Bush's economic stimulus plan would work.
"The plans by the U.S. Bush administration to stimulate the economy have not brought about much optimism to the financial markets," Shum said.
Most stock markets have reacted pessimistically, uncertain Bush's plan is enough to stave off a severe economic downturn in the world's largest oil consumer.
On Monday, Britain's benchmark FTSE-100 slumped 5.5 percent, France's CAC-40 Index tumbled 6.8 percent and Germany's blue chip DAX 30 plunged 7.2 percent.
Nymex heating oil futures dropped 5.89 cents to $2.4485 a gallon (3.8 liters) while gasoline prices lost 5.54 cents to $2.248 a gallon. Natural gas futures declined 18.5 cents to $7.808 per 1,000 cubic feet.
[Associated Press; By PABLO GORONDI]
Associated Press Writer Gillian Wong in Singapore contributed to this report.
Copyright 2007 The Associated Press. All rights reserved. This
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