Oil prices fall on renewed demand fears

"This short-term downturn is not done yet. It could take WTI to as low as $75. The fundamental picture is not that bad but if the overall economy remains weak it is very hard to make a case for a bull run in oil," said Tony Nunan, a risk manager with Mitsubishi Corporation in Japan.

"What could turn the situation around is if OPEC tightens supply. The question is at what price trigger it will do that."

Brent oil could extend the current fall to $105.24 per barrel, while U.S. oil is expected to slide more to $78.85 per barrel, as the bearish momentum is strong, said Reuters market analyst Wang Tao.

The Reuters-Jefferies CRB , a global benchmark for commodities, fell more than 2 percent on Thursday -- its largest daily decline since Aug. 8, when energy, metals and agricultural markets slumped following the Standard & Poor's downgrade of the U.S. triple-A credit rating.

Investors continued to flee riskier assets in favour of safer havens amid the turmoil, with gold prices hitting record highs on Friday, while Asian stocks tumbled as much as 4 percent.

The selling came after data showed factory activity in the U.S. Mid-Atlantic region in August fell to the lowest level since March 2009. The data from the Philadelphia Federal Reserve Bank is viewed as a forward-looking indicator of national manufacturing.

An unexpected fall in existing U.S. home sales in July and a greater-than-expected rise in new claims for jobless benefits in the latest week added to growing fears that the U.S. economic recovery could stall and slide into recession.