(EnergyAsia, June 22 2012, Friday) — The oil markets hit an 18-month low with Brent crude futures sinking below US$90 a barrel and US benchmark WTI crashing through US$80 on further evidence of slowing economic activities in the US, Europe and Asia.

Both benchmarks lost more than 3% of their overnight value with Brent touching US$89.27 a barrel, below its previous low of US$90.02 set in December 2010. Once it went below US$80, WTI fell right through to US$78.39 with little resistance along the way.

Despite forecasts by leading agencies IEA, OPEC and EIA for global oil demand to continue growing and spare capacity to shrink further, the oil markets are focused squarely on the immediate picture of prolonged economic weakness in Europe and the US. China, which continues to account for the bulk of oil demand growth, is doing more stockpiling than consumption these days.

Oil’s war premium is also rapidly evaporating. The threat of war between the West and Iran appears to have receded as the US and Israel are meeting strong resistance from within as well as from Russia and China to refrain from launching a military strike on the Islamic regime.

Even with Saudi Arabia cutting back production from a recent 30-year high of over 10 million b/d, traders deem there is too much supply on the world markets.

Some traders are forecasting crude futures could fall as low as US$40 to US$50 a barrel, implying another 40% drop, possibly to levels last seen in December 2008. At their high points in February, WTI traded at over US$115 a barrel while Brent soared to US$128.

Credit Suisse analysts last week issued a bearish call for Brent to test US$50 a barrel in a worst-case scenario as the Eurozone economies continue to collapse.