Crude oil prices tumbled below $39 yesterday as grim economic news gripped global financial markets, underscoring the severity of the world-wide recession that is eroding demand for petroleum products.

US light sweet crude for February delivery settled 93 cents lower at $38.98 a barrel by after falling steeply on Monday.

North Sea Brent traded on the London ICE Futures exchange dropped fell $1.09 to $40.36 a barrel.

The world's top economy, the United States, shrank an unrevised 0.5% in the third quarter. Consumer spending plunged by 3.8%, the biggest drop since 1980.

Sales of newly-built US single-family homes slowed in November to the weakest levels since 1991, according to Commerce Department data, that offered fresh evidence of housing market distress.

The UK economy shrank for the first time since the early 1990s in the third quarter and by more than expected, the Office for National Statistics reported, with gross domestic product contracting 0.6%. Meanwhile, New Zealand tipped further in recession and the newspaper El Mundo reported that the Spanish economy had fallen into recession.

"This means the recession is deepening and consumers are saving more. That is a pretty clear sign that we're going to get a bigger fall in output in the fourth quarter," said Brian Hilliard, chief UK economist at French bank Société Générale, referring to the British data.

Elsewhere in the energy sector, Russia, the world's top gas exporter, played host to the founding of a formal gas producers' group but faced criticism from Opec for refusing to join in cutting oil output to support energy prices.

With Prime Minister Vladimir Putin presiding, energy ministers from 12 gas exporting countries, many of them Opec delegates, met to create a new gas group that they said could benefit consumers and would not control output or prices.

Putin warned that the price of gas is going to rise. "Costs of exploration, gas production and transportation are going up - it means the industry's development costs will skyrocket," he said. "The time of cheap energy resources, cheap gas is surely coming to an end."

The event, partly meant to increase Russia's clout in global energy diplomacy, did not go smoothly for Moscow.

Concern about falling prices and flagging demand quickly surfaced as country representatives said Russia should have sacrificed some of its own output to back up President Dmitry Medvedev's promise to support Opec oil production cuts.

The Kremlin's critics said an important way to help gas prices is to bolster the oil price, which they reflect.

Russia, which is also the world's second-biggest oil exporter, has said it is considering all options, including joining the Organisation of the Petroleum Exporting Countries, to defend its national interests. However, it did not make any firm pledges when Opec ministers, meeting at Oran in Algeria last week, agreed their deepest production cuts of 2.2 million barrels per day.

The cartel's president, Chekib Khelil, said that Russia had enjoyed the bene-fit of Opec's cuts without sharing the pain. "If there was no Opec reductions in September and October, I think we would have seen prices today at maybe $20 (per barrel). So it was because of Opec that revenues for Russia were at $40 now, not at $20," he said.

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