Nov. 20 (Bloomberg) -- Crude oil tumbled to the lowest since May 2005 as a recession in the U.S., Europe and Japan cut global energy consumption.

Oil has dropped nearly $100 from its July record as the world economic crisis reduced global demand growth to its weakest in 23 years. Crude oil’s continuing slide will add to concern that the U.S. economy faces deflation, threatening investment in oil and gas production projects.

“The drop in oil prices is all about one thing, the decline in the global economy,” said Adam Sieminski, Deutsche Bank’s chief energy economist, in Washington. “At $50 a barrel, oil is starting to look very cheap on a number of historical price and income measures.”

Crude oil for December delivery fell $4, or 7.5 percent, to $49.62 a barrel at 2:46 p.m. on the New York Mercantile Exchange, the lowest settlement since May 23, 2005. Prices fell as low as $48.64 today. Futures have dropped 66 percent since reaching a record $147.27 on July 11.

The December contract expired today. The more active January contract dropped $4.68, or 8.7 percent, to settle at $49.42 a barrel. It fell as low as $49.24 today.

The drop accelerated after U.S. lawmakers delayed action on a bailout for struggling domestic automakers until next month. Congress is in a stalemate over how to pay for the $25 billion the automakers are seeking.

“We overshot on the way up and will do the same moving lower,” said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $5 billion energy-company bond portfolio. “Given the dire economic straits we are in, you are seeing investors run from everything. Until the economy has stabilized, there will be no sustained rally.”

The International Energy Agency, an adviser to 28 nations, said last week that world oil demand will rise at its slowest pace for 23 years in 2008. It cut its 2009 estimate by 670,000 barrels a day to 86.5 million barrels a day, the biggest reduction in 12 years.

‘Contracting Sharply’

“Prices are plunging down through $50 due to the serious economic slowdown, broad-based deleveraging and risk aversion,” said Mike Wittner, head of oil market research at Societe Generale SA in London. “Demand growth in developed countries is contracting sharply.”

New York oil futures first traded above $50 on Sept. 28, 2004, in the middle of oil’s six-year rally toward this year’s records. Prices climbed on the strength of oil demand from emerging economies, led by China, the world’s second-largest oil consumer after the U.S.

U.S. consumer prices plunged 1 percent last month, more than forecast and the most since records began in 1947, after being unchanged the prior month, the Labor Department said yesterday. That increased concern the U.S. risks a sustained period of falling prices or deflation.

Gasoline Demand

U.S. gasoline purchases declined for a 30th consecutive week last week, MasterCard Inc. said on Nov. 18. China cut diesel imports to the lowest in 14 months during September, the Customs General Administration said Nov. 17.

“Americans are driving less and less because of the recession, and that’s making prices drop,” said Sean Brodrick, natural resource analyst with Weiss Research in Jupiter, Florida. “If the economy gets worse, you are going to see demand and prices drop further.”

The IEA’s expectation that demand will expand next year is more optimistic than the outlook from several other analysts. Ian Taylor, chief executive officer of oil trader Vitol Group, said on Oct. 28 he expects a 1 million-barrel decline in 2009, while Wood Mackenzie Consultants Ltd. predicts a drop of 250,000 barrels.

$40 Oil

Prices may fall as low as $40 a barrel by April, Deutsche Bank AG said in a report yesterday. The Organization of Petroleum Exporting Countries potentially needs to cut production by 2.5 million barrels a day to reduce output in an oversupplied market, the note said.

The group, supplier of more than 40 percent of the world’s crude, has lost $700 billion in revenue because of falling prices, the British Broadcasting Corp. reported, citing Chakib Khelil, the group’s president.

OPEC, due to meet on Nov. 29 in Cairo and again on Dec. 17 in Algeria, may lower output by a further 1 million barrels a day this year, extending production cuts agreed to last month, according to a Bloomberg News survey of analysts last week.

The drop in oil prices may cut investment. As many as 44 projects being undertaken by companies including Saudi Arabian Oil Co., Royal Dutch Shell Plc and Petroleo Brasileiro SA have been delayed or faced spending reduction, according to a Nov. 18 report by Morgan Stanley & Co.

“We are setting ourselves up for another rally,” Hodge said. “Investment is falling, and although there is some supply cushion it will soon disappear once demand starts to grow again. Projects are being deferred because there is no rush to get production online right now.”

Brent crude oil for January settlement declined $3.64, or 7 percent, to $48.08 a barrel on London’s ICE Futures Europe exchange, the lowest settlement since May 20, 2005.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

Last Updated: November 20, 2008 16:11 EST