Oil prices nosedived by over five dollars Tuesday as falling global equities and resurgent concerns about an economic slowdown stoked fears about future energy demand, traders said.
Oil prices, which hit record heights close to 147 dollars a barrel just last week, also sank after the Group of Eight (G8) rich nations warned on soaring crude costs and appealed for more production.
New York's main oil futures contract, light sweet crude for August delivery, tumbled by 5.33 dollars to close at 136.04 dollar a barrel.
In London, Brent North Sea oil for August delivery plunged 5.44 dollars to settle at 136.43 dollars.
Crude prices fell heavily "amid concerns over the general health of global economies following a sharp sell off in equities," said Sucden analyst Nimit Khamar.
"Many economies face a bleak economic outlook which could reduce the demand for oil, especially at current prices."
World stock exchanges suffered sharp falls Tuesday on fresh fears for the banking sector, with the French market hitting a three-year low following big losses in Asia and the United States, dealers said.
In Japan on Tuesday, eight of the world's most powerful leaders called for efforts to cool sizzling oil prices, warning soaring fuel and food costs were a threat to world economic growth.
"It seems to me like oil traders are looking with some interest at the headlines coming out of the G8 meeting," said Dave Ernsberger, Asia director of global energy information provider Platts in Singapore.
The London Brent contract hit an all-time peak of 146.69 dollars and New York crude struck a record high of 145.85 dollars last Thursday.
The G8 said Tuesday that it was ready to take action to cushion global growth from runaway energy costs, but stopped short of announcing concrete steps on the second day of an annual summit.
The G8 nations -- Britain, Canada, France, Germany, Italy, Japan, Russia and the United States -- said the world was "facing uncertainty," although they remained positive about the long-term resilience of their economies.
Oil slumped on Monday, losing almost four dollars in New York, on the back of easing geopolitical tensions over Iran's nuclear program and a strengthening US dollar.
However, jitters about key crude producer Iran returned on Tuesday.
Iran would "set on fire" Israel and the US navy in the Gulf as its first response to any American attack over its nuclear program, an aide to supreme leader Ayatollah Ali Khamenei warned.
"The first US shot on Iran would set the United States' vital interests in the world on fire," said Ali Shirazi, a mid-ranking cleric who is Khamenei's representative to the naval forces of the elite Revolutionary Guards.
"Tel Aviv and the US fleet in the Persian Gulf would be the targets that would be set on fire in Iran's crushing response," he said, according to the Fars news agency.
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