Oil drops 6 percent to below $88 on demand concerns

il dropped more than 6 percent to below $88 a barrel on Monday as a global market rout churned concerns that faltering fuel demand could slow further.

U.S. stocks tumbled 6 percent to the lowest level in nearly five years as part of an international sell-off on fears the global economy was heading into recession.

Crude prices have plummeted from a peak over $147 a barrel set on July 11 as high fuel prices and the growing financial crisis slow oil demand in top consumer the United States and other industrialized nations.

"The prevailing macro sentiment is now crystallizing around the notion that we are heading into a synchronized global slowdown, a mirror image of the across-the-board expansion we saw from 2004 to early 2007," said Edward Meir of broker MF Global.

Analysts are watching oil demand from China -- which helped fuel a 6-year rally in commodities -- for signs the crisis is hitting consumption.

The world's No. 2 consumer will not import gasoline for the second straight month and instead export the fuel due to heavy domestic stockpiles and a dip in demand.

"I think the market's starting to build this into prices," said Mark Pervan, senior commodities analyst at ANZ. "You would expect the market is now joining the dots and thinking ... this will probably flow through to China."

The U.S. and European governments are trying to underpin the financial sector but so far this has failed to reassure investors.

European shares suffered their worst one-day percentage fall on record, sinking to four-year closing lows while trading in Brazil halted after a 15 percent drop in its benchmark index.

The drop in prices has caused some concern among OPEC members, while analysts are revising down demand outlook projections.

"Definitely there is worry. When the prices are so volatile, like rising to $140 and then dropping to below $90, it worries everybody," said Iraq's Oil Minister Hussain al-Shahristani.

Ecuadorean Oil Minister Galo Chiriboga said OPEC will analyze the impact of the global financial crisis on oil demand and set production levels in accordance.

Iran said $100 a barrel was too low and urged members to respect their output targets to prevent oversupply from worsening.

OPEC President Chakib Khelil said OPEC would seek to balance the market when it meets in December.

(Reporting by Matthew Robinson, Gene Ramos and Robert Gibbons in New York, Jane Merriman and Joe Brock in London and Jonathan Leff in Singapore; Editing by David Gregorio)