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) --

Oil prices

plunged below $80 Friday as European debt panic slammed into the markets with the downgrade of eight Greek banks by Moody's Investor Service and traders liquidated positions to cover margin calls.

West Texas Intermediate light sweet crude oil for November delivery tumbled 82 cents to $79.69 and the November Brent crude contract slumped by 54 cents to $103.44 a barrel, as Moody's declared that the Greek government "faces significant solvency challenges and historical experience shows that small sovereign debt restructurings have often been followed by larger sovereign defaults."

On Friday, Moody's downgraded eight Greek banks by two notches, highlighting the massive amounts of money they could lose due to their gargantuan exposure to Greek government bonds.

Moody's warned that private creditors could also face major losses due to their large exposure to the tenuous Greek government bonds.

Friday's oil price plunge mirrored the previous day's bloodbath, when oil prices got pummeled following reports that pointed to signs of contraction in the Chinese economy -- the biggest consumer of energy in the world -- and recessionary conditions in the eurozone. OptionsXpress analyst Michael Zarembski said there are signs right now that refinery buying in the futures is on the decline.

"The moves have been exacerbated by some larger players liquidating positions," said Kingsview Financial trader Matthew Zeman.

In the U.S., the


"Operation Twist" announcement provided little comfort to the markets, who had just received news of another round of weak jobs numbers.

Commenting on the big price declines, Zeman added that "a lot of people

were also having to liquidate positions to cover margin calls. This almost always leads to some 'unruly' selling like what we have seen the last few days."

He added, "(A) lot of volume on the New York Stock Exchange yesterday, which actually could be indicative of a short term bottom." Typically, oil trades with stocks.

Zarembski noted that he wouldn't be surprised if crude oil spiked Friday with the passing of this week's commodity liquidation.

Meanwhile, SEB commodity strategist Filip Petersson said that independent of strong fundamentals, crude oil could be yanked in either direction Friday, driven by the general market climate.

"Today there are no major economic releases, giving markets a chance to take a breather and rethink the situation," Petersson said.

A few positive remarks from policymakers Friday could very well push prices back into positive territory.

EOG Resources

(EOG) - Get Free Report

was falling 1.6% to $75.52;

Suncor Energy

(SU) - Get Free Report

was tumbling 1.5% to $25.15;


(XOM) - Get Free Report

was down 0.9% to $68.60;

Cheniere Energy

(LNG) - Get Free Report

was losing 3.5% to $5.31;

Kinder Morgan


was down 0.8% to $68.01;

Baker Hughes


was tumbling 2.1% to $50; and

Triangle Petroleum


was down 0.1% to $4.09.

"I think we are way oversold in the commodity sector as trades are anticipating another 'Lehman' situation like we saw in early 2009 -- I don't believe that is in the cards," Zarembski said.

-- Written by Andrea Tse in New York.

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Andrea Tse


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