Crude-oil futures dropped Friday, paring their 14% gains in the previous session, as worries returned that a recessionary economy will cut into energy demand.
Crude for February delivery was last down $2.09, or 5%, at $42.51 a barrel in early electronic trading on Globex.
Earlier, the contract hit an intraday low of $41.05 a barrel.
"Oil prices tumbled nearly 8% this morning on continued concerns over the global economy especially in Asia following further evidence of slowing demand over the last few days and as market participants viewed Wednesday's rally as excessive," said Nimit Khamar, an analyst at Sucden Financial Research.
On Wednesday, oil futures rallied $5.57, or 14%, to end at $44.60 a barrel on the New York Mercantile Exchange. Oil ended 2008 with a loss of 54%, the biggest yearly loss since futures started trading in New York in 1983.
Energy traders are also keeping an eye on an energy dispute between Russia and Ukraine.
Russia has sent its assurances to several European Union countries that they won't face any disruption in natural-gas supplies amid a dispute over unpaid bills and pricing to the Ukraine. Read more.
Russia cut off natural-gas supplies to Ukraine on New Year's Day, stating that its neighbor had not paid its debts owed to Russian state-controlled gas giant Gazprom (UK:OGZD: news , chart , profile ) . Ukraine insists it has paid those bills, while the two countries have also failed to agree on a price for natural gas for 2009, according to media reports.
In the currency markets, the U.S. dollar started 2009 a little higher, rising early Friday after a report showed manufacturing in Europe slowed.
The dollar index which tracks the currency against a basket of several counterparts, gained 0.4% to 81.64. The purchasing managers' index showed manufacturing activity in the eurozone fell for a seventh month, to 33.9 in December from 35.6 in November. The reading is the lowest in the survey's history.
Dollar strength typically boosts dollar-denominated commodities such as oil and gold.
Also on Globex, February reformulated gasoline fell 7 cents, or 6%, to $1.00 a gallon and February heating oil fell 6 cents to $1.39 a gallon.
February natural gas futures dropped 7 cents to $5.55 per million British thermal units.
