Bleak U.S economic data and warnings from the US Fed that tough times are not over led Wall Street to its worst day since the 1987 stock market crash, wiping out earlier optimism fuelled by government steps to avert a financial meltdown. Japan's Nikkei index dived 9.55 per cent in early trade.

US crude for November delivery fell $1.56, or about 2 per cent, to $72.98 a barrel by 0154 GMT. The front-month contract has lost nearly a third in value in three weeks, the steepest such decline since it began trading in 1983.

London Brent crude fell $1.30 to $69.50.

"The oil markets are now highly correlated to the stock markets. Everyone now uses the stock markets to gauge the health of the economy," said Clarence Chu at US-based options trader Hudson Capital Energy.

Crude now stands more than 50 per cent off its July peak above $147, and analysts have scaled back global demand growth estimates after a recent slew of gloomy data that has overshadowed OPEC's talk of possible production cuts and a hurricane that is disrupting Carribean refining operations.

US retail gasoline demand last week fell more than 9 per cent year-on-year for a second straight week as consumer spending slowed, MasterCard Advisors said.

JP Morgan cut its average oil price forecast for 2009 to $74.75 a barrel, and the Organization of the Petroleum Exporting Countries also reduced its forecasts for world demand for crude next year in its latest monthly report.

The cartel meets in November in Vienna to assess the global financial crisis's effect on the oil market, with growing expectations it will want to lend support to a market that's been swept up in the deleveraging across commodity markets.

The Reuters-Jefferies CRB index tumbled 4.5 per cent on Monday to its lowest in three-and-a-half years.

"Sentiment is just so bearish. I would think $70 is a pretty strong support, but the way the market is selling down, we just don't know," Chu said. US weekly oil inventory data due later in the day is expected to show that crude oil stocks probably rose for the third straight week, gaining 1.9 million barrels, while distillate and gasoline stocks also increased amid weak demand, an expanded Reuters poll showed.

The data is to be announced at 11 a.m. EDT, a day later than usual due to Columbus Day on Monday.

Hurricane Omar, which disrupted shipments from Venezuela this week, strengthened into a Category 2 storm on Wednesday as it headed toward Puerto Rico and the northeastern Caribbean, but was on a northeast trajectory away from the US Gulf, the National Hurricane Center said.