Oil dipped more than $1 a barrel yesterday, as worries over threats to economic growth from a deepening credit squeeze in global financial markets outweighed forecasts for robust oil demand.

US crude was $1.03 down at $70.56 a barrel by the early afternoon, taking losses from last week's record high of $78.77 to more than 10 per cent. London Brent crude fell 91 cents to $69.30.

"The subprime effect . . . continues to weigh on the market," said Tom Nelson, analyst at Guinness Atkinson Asset Management.

Other analysts said commodity markets were finding it increasingly tough to keep their traditional "safe-haven" status.

"Continued downward pressure from both equities and the corporate bond markets will eventually undermine commodity prices and not necessarily revive them," analysts at MF Global said in a report.

"Meanwhile the outlook for demand appeared robust, providing a floor to oil prices. The adviser to 26 industrialised countries - the International Energy Agency - said yesterday that world oil demand will grow at a faster pace in 2008 . . . and [ called] for more Opec oil."

Mr Nelson added that the build in OECD oil stocks in the second quarter was smaller than normal at 67 million barrels.

Analysts said oil prices would also find support from Opec's reluctance to increase output at its September meeting, fuelling concerns of a supply squeeze in the fourth quarter ahead of peak winter fuel demand.

Saudi Arabia told customers in Japan and Europe on Thursday that it would keep oil supply levels unchanged in September.

Venezuelan oil minister Rafael Ramirez has also ruled out pumping more oil. He said inventories were higher than average and he saw no need to increase production. - (Reuters)