Oil prices fell more than 5 percent on Monday, the biggest slide since December 2004, as concern about the U.S. economy rippled through financial and commodity markets.

The slide added to hefty losses Friday following a report showing weaker-than-expected job growth in the United States, the world's biggest oil consumer, and another which showed slowing growth in the service sector.

The macro picture does not look good, said Nauman Barakat, senior vice president at Macquarie Futures USA. The subprime crisis is also spilling over into the commodities sector, and in particular the energy.

U.S. crude settled down $3.42 at $72.06 a barrel before extending losses in electronic trade to $3.88, or more than 5 percent. It was the biggest fall since December 27, 2004, when an unusual warm spell undercut U.S. heating demand.

London Brent lost $3.58 to $71.17 a barrel.

The slump reverses crude's rally to an all-time high last week of $78.77 a barrel, supported by worries that rising global demand and continued OPEC cuts could cause a supply crunch later this year.

Crude futures are down today on concerns about economic growth, said Kyle Cooper, energy analyst at IAF Advisors in Houston. With no bullish development over the weekend, it developed into a one-two punch that hit crude, which has been overpriced lately.

Markets were being hit by the prospect that the borrowing that drives the financial system will either become prohibitively expensive or dry up completely as a result of risk repricing.

This began with difficulties and losses in the U.S. subprime -- or risky -- mortgage business and has spread to other areas. An economic downturn could slow world demand growth for energy.

Dealers added that speculators that had ridden oil's rally to a peak may also be taking profits. Speculative net long positions in the U.S. crude oil market soared to record highs in recent weeks.

I think we're seeing some liquidating of that length, said Cooper.

OPEC RELUCTANT TO HIKE

Oil remains sharply up from about $50 in January due to real and threatened disruptions to crude oil supply, constraints at oil refineries, resilient demand and a flow of investor money into commodities.

The reluctance of the Organization of the Petroleum Exporting Countries, which began curbing supply late last year, to increase crude output has limited price declines.

OPEC, source of more than a third of the world's oil, meets on September 11 to set production policy. Some officials have said the exporter group does not need to increase supplies.

The longer the group keeps a lid on shipments, the greater the chance of a further rally in prices, Goldman Sachs said.

We maintain that every day that goes by without a significant recovery in Middle East exports, the price risk becomes increasingly skewed to the upside, the bank said.

(Additional reporting by Alex Lawler in London)

OPEC Energy