Oil near $78 amid global economic growth worries

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Oil prices made small gains above $78 a barrel Friday but remained near eight-month lows after signs of slowing global economic growth triggered a sharp plunge this week.

By early afternoon in Europe, benchmark oil for August delivery was up 33 cents at $78.53 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $3.25 to settle at $78.20, the lowest since October, in New York on Thursday.

In London, Brent crude for August delivery was up 98 cents at $90.21 per barrel on the ICE Futures exchange.

Crude fell from $84 earlier this week and has plummeted 26 percent in less than two months as signs mount of a slowdown in the global economy, led by Europe, that would reduce demand for crude.

"Until a permanent solution is found to the eurozone's problems, the global economy is likely to muddle through this crisis for a considerable while, and persistent bouts of risk aversion are likely to haunt the oil markets, making any sustained upside difficult," said analysts at Barclays Bank in London.

Reports on Thursday that showed industrial production is slowing in the U.S. and China added to evidence that the world's two largest economies and oil consumers are weakening just as global crude supplies are growing.

Europe's debt and economic woes are unlikely to be solved soon. The formation of a new Greek government this week briefly boosted investor optimism, but doubts about other debt-ridden European countries such as Spain and Italy continue to weigh on markets.

"Currently, all indicators point to continued sliding prices: sentiment on the financial markets remains very gloomy, economic growth is set to slow even further, the U.S. dollar is still showing strength and no rapid solution to the 'euro crisis' is in sight," said a report from Commerzbank in Frankfurt. "Nonetheless, we believe that the fundamental supply/demand situation is in a better state than market prices would suggest and that commodities will reach a price bottom by the late summer at the latest."

In other energy trading, heating oil was down 0.07 cent at $2.5224 per gallon while gasoline futures gained 1.44 cents at $2.4664 per gallon. Natural gas was up 0.4 cent at $2.586 per 1,000 cubic feet.

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Alex Kennedy in Singapore contributed to this report.