World oil prices fell steeply on Thursday as hefty declines on world stock markets left traders fretting about potentially risky investments in the commodities markets, analysts said.

Traders said some speculators and investment funds were moving cash into more secure investments and out of riskier holdings, and that some of this movement had dented the oil market.

New York’s main oil futures contract, light sweet crude for delivery in September, dived 2.33 dollars to close down at 71.00 dollars per barrel.

In London, the price of Brent North Sea crude for September delivery sank 2.22 dollars to settle at 69.42 dollars per barrel.

“With central banks about the only institutions handing out money, at the moment, participants indubitably must make the connection that energy demand will eventually be negatively impacted,” said John Kilduff, a market analyst at MF Global.

Global stock jitters have been triggered by fears over the distressed US housing and mortgage markets and a related credit crunch sweeping America’s financial markets.

Oil analysts fear a sustained shock to the US financial system which might have the potential to slow economic growth and thus America’s appetite for oil.

“Crude futures were sharply lower … in both London and New York, reversing yesterday’s gains amid more risk aversion and as credit woes worsened,” Sucden analyst Andrey Kryuchenkov said.

Sliding share prices are fueling risk aversion among speculators, who are pulling money out of assets they perceive as risky, such as oil futures, in favour of government bonds and currencies like the dollar which are perceived as safer investments.

Some traders are also liquidating their holdings in oil futures to cover losses in other markets, analysts said.

“Oil is still being pressured by the equity markets,” said Olivier Jakob, an analyst at Petromatrix.

Traders have voiced fear that economies other than the United States might have to endure slower economic growth if a global stock market downturn becomes entrenched.

Last week, crude futures shed over seven percent in London and almost six percent in New York as traders fretted over the impact on oil markets.

Prices were also pushed lower Thursday by reports that hurricane Dean would likely spare critical US oil production facilities in the Gulf of Mexico.

“A combination of the hurricane veering away from the Gulf and weakness on the stock markets could see prices coming down more,” Bache Financial trader Christopher Bellew said.

Worries about the storm and news that US crude inventories had fallen last week had seen prices gain a day earlier.

The US Department of Energy revealed Wednesday that US crude inventories slumped by 5.2 million barrels last week – more than double a fall of 2.5 million forecast by analysts.

“In the short term, financial market movements are likely to remain a key driver of price direction,” Barclays Capital analysts said. – AFP/de