Oil prices slide under $78

LONDON: Oil prices fell further on Friday on weak energy demand and news the US commodity and options regulator was looking to tighten controls in the energy futures market, analysts said.

In a report, the International Energy Agency said oil demand in 2010 will be "sluggish" in the developed world, with emerging markets accounting for any increases and top producers switching supplies to eastern growth markets.

Brent North Sea crude for March delivery dropped 1.02 dollars to 77.55 dollars a barrel in afternoon London deals.

New York's main futures contract, light sweet crude for delivery in February, slid 95 cents to 78.44 dollars a barrel.

Oil prices slipped on Thursday as traders weighed weak energy demand in the United States that raised concern about the strength of a fragile recovery in the world's largest economy.

The US Department of Energy (DoE) on Wednesday reported an unexpected increase in US petroleum reserves.

In a choppy week, New York crude hit a 15-month high of 83.95 dollars on Monday after robust Chinese data but subsequently tumbled on news that Beijing was tightening money supply to tame economic growth.

"I think this was a much-needed correction ... because oil had run up to almost 84 dollars," said Tony Nunan, a risk manager with Mitsubishi Corp.

"A lot of this optimism and euphoria was driven by Chinese demand."

China is a major oil consumer and importer like the United States.

Nunan said the increase in US energy stockpiles "was a reality check because people realised that the inventories were still high ... so there's a lot of fear and uncertainty in the market now."

The DoE said crude reserves soared 3.7 million barrels in the week ending January 8, far more than the consensus forecast for a 1.0-million-barrel gain.

Distillates -- including heating fuel and diesel -- rose 1.4 million barrels, the DoE said, confounding forecasts for a 1.8-million-barrel drop.

Distillates are currently in focus amid an ongoing cold snap in the United States but forecasters have predicted milder weather for the weeks ahead.

Prices were also impacted by the Commodity Futures Trading Commission's proposal Thursday to regulate the energy futures market.

"There's a strong feeling that it could impose (conditions) on energy contracts so I think that was one of the bearish catalysts for oil prices," Nunan said.

Meanwhile, the IEA warned of possible "downside risks" to recovery for members of the Organisation for Economic Cooperation and Development (OECD), which groups the world's 30 richest economies.

"Oil demand recovery in the OECD will likely remain sluggish," the Paris-based IEA said in its monthly oil market report.

"Demand growth in 2010 derives entirely from outside the OECD," it added.

The IEA left unchanged an earlier forecast of a 1.7-percent rise in demand in 2010 to 86.3 million barrels per day (mbd).

The report explained, however, hat much of that increase would come from Asia, alongside Latin America and the former Soviet Union.

In a separate development on Friday, Nigerian gunmen demanded a ransom of 300 million naira (1.98 million dollars, 1.38 million euros) for the release of three Britons and a Colombian abducted this week, police said.

The four -- contract workers for the Anglo-Dutch oil giant Shell -- were abducted on Tuesday between oil city of Port Harcourt and nearby Aba in Abia State.

The incident was the first major kidnapping in southern Nigeria since last July following a lull in the wake of a government amnesty which saw thousands of militants lay down their arms.