Oil prices drop dramatically

Oil fell on Friday to cap a frenzied trading week that sliced prices by a record of more than $16 a barrel on demand worries and a move by investors to slash commodities exposures, Reuters reports.

Oil bounced up early, then began to erase gains as the dollar rose. Crude turned negative late, extending Thursday's shock-inducing collapse, when Brent fell by as much as $12, a record, in a furious, high-volume session that saw wave after wave of selling as key technical levels were broken.

Selling pressure on oil and other commodities came on several fronts throughout the week. Investors weighed factors from the death of Osama bin Laden to the impact of higher fuel and commodity costs on consumer nation economies to the monetary policy in major economies.

Cascading sell stops created a "domino effect", said Tom Bentz, director of BNP Paribas Commodity Futures in New York. "It became a vacuum of less people trying to buy and more people trying to sell."

Brent crude fell $1.67 to settle at $109.13 a barrel in heavy trade, with volumes twice the 30-day moving average. The contract tumbled $16.76 a barrel for the week, marking the largest weekly decline ever in dollar terms.

According to The Wall Street Journal, Russia's ability to balance its $375 billion budget has come under threat after a sharp drop in crude prices, especially since the Kremlin plans on boosting spending during a year of parliamentary elections and preparations for the 2012 presidential vote.

Russia's annual budget is expected to lose $36 billion from Brent crude's $18 drop from a recent high of $127.02 a barrel, assuming prices don't rebound. The crude drop threatens to put the budget into deficit, since Finance Minister Kudrin has said the budget needs an average 2011 oil price of $115 to balance, although many economists say the crucial oil price is somewhat lower.

The ruble weakened significantly against the dollar on Friday after oil slumped, but Russian Eurobond prices were relatively steady, taking their cues from international debt markets and Treasurys.