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The International Energy Agency slashed its estimate of worldwide 2008 oil demand growth to its lowest rate since 1993, and lowered its 2009 growth forecast by 190,000 barrels per day.

U.S. crude plunged $8.89 to settle at $77.70 a barrel, the lowest levels since September 10, 2007, and down 17 percent from last Friday’s settlement. London Brent crude settled down $8.57 at $74.09 a barrel.

“At this point, margin calls are certainly a pressure factor in the crude oil market,” said Jim Wyckoff, president of Jimwyckoff.com, which provides commodities markets commentary.

The Treasury is “working to develop a standardized program that is open to a broad array of financial institutions,” Paulson said at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.

The injection of equity would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades. Paulson declined to give a timetable or details about the purchases, and signaled that markets may be in for turmoil ahead.

“We’re going to do it as soon as we can do it and do it properly and do it effectively and right,” Paulson said. “Trust me, we are not wasting time; people are working around the clock to deal with this.”

A drop in home prices and illiquid securities tied to mortgages led to the collapse of some of the country’s biggest financial firms and to takeovers by the Treasury of American International Group Inc. and Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.

“The idea of suspending the markets for the time it takes to rewrite the rules is being discussed,” Berlusconi said today after a Cabinet meeting in Naples, Italy. A solution to the financial crisis “can’t just be for one country, or even just for Europe, but global.”

The Dow Jones Industrial Average fell as much 8.1 percent in early trading and pared most of those losses after Berlusconi’s remarks. The Dow was down 0.5 percent to 8540.52 at 10:10 in New York.

Group of Seven finance ministers and central bankers are meeting in Washington today, and will stay in town for the International Monetary Fund and World Bank meetings this weekend. European Union leaders may gather in Paris on Oct. 12, three days before a scheduled summit in Brussels, Berlusconi said today, while Group of Eight leaders may hold a meeting on the crisis “in coming days,” he said.

Berlusconi didn’t give any details about what kind of rules leaders were looking to change, except to say that leaders are “talking about a new Bretton Woods.”

Analysts have predicted the Lehman settlement will trigger gross payouts of $350bn to $400bn. Meanwhile, the recent rash of Icelandic banking failures could bring further derivative payouts estimated at $200bn in the coming weeks.

No one is sure where the heaviest losses will be felt — and net losses are expected to be much lower than the headline payout estimates — but there remain fears the recent run of large-scale defaults may leave many hedge funds with payout demands they cannot meet. This, in turn, will force writedowns for those failing to receive payouts, many of them major banks.

Sandy Chen, a banking analyst at Panmure Gordon, this morning described the prospect of mass payment failures as “key drivers of the current apocalypse”. He pointed to Barclays and Royal Bank of Scotland as being most exposed among the UK banks to the credit derivative market. Both have bought and sold, in roughly equal measure, £2.4tn of such contracts.

An explosion in the largely unregulated credit derivatives market in recent years has seen potential payouts balloon to levels that far outstrip the potential losses from the underlying bonds they reference.

Lehman had $110bn of senior bonds outstanding before filing for bankruptcy last month. Since default, those bonds have been trading between 15 cents and 20 cents in the dollar. Analysts estimate there are $440bn of credit default swaps (CDS) outstanding in relation to Lehman senior bonds.

In theory, a CDS is a contract in which a bondholder buys insurance — known as protection — against that bond defaulting. In practice, however, CDSs have become hugely popular among investors trading on the likelihood of a bond default without holding the underlying bond. The market has proved particularly popular with hedge funds, in part because it offers an opportunity to “short sell” bonds.

Derivatives specialists insist it is impossible to predict which investors will be hit hardest by the losses on Lehman CDSs, which are spread far and wide, as Lehman was one of the most actively traded credit default swaps.

The United Nations Office on Drugs and Crime (UNODC) describes the situation as “a time bomb for public health and global security”.

This week’s Map of the Week comes courtesy of the UNODC. It shows their latest estimate of opium production in Afghanistan – another bumper year.

A crop of 7,700 tonnes will produce around 1,100 tonnes of heroin – it basically works on a 7:1 ratio.The mystery is that the global demand for heroin is less than half that. In other words, Afghanistan only needs to produce 3,500 tonnes to satisfy every known heroin user on the planet.

Look at the graph, though.

How do you explain the open interest drop at the Comex?

The open interest is at a 2 year low? Why don’t people understand the disconnect? Are all the central banks working to silence the canary? How else do you explain the explosion of tons on the Gold ETF (GLD), the huge public demand for the metal, the disconnect with the Comex action and the inability for Gold NOT to scream higher in this environment.

Minyan Dave

MD,

Open interest is falling on the COMEX because I believe you are seeing a gradual exit from the futures market due to a general distrust for the futures market (and all counterparties in general) due to the environment. That’s why we see reports of physical gold demand exploding and lease rates moving to record levels as central banks pull back in their leased gold. But the futures seem to trade as if nobody cares. Those central banks are pulling in their gold because they are worried about counterparty risk. They’re afraid they won’t get it back.

We’re seeing similar exits from the futures market in oil and other commodities too, not because of demand destruction, but because of flight from counterparty risk. After all, with respect to oil, if there’s all this demand destruction, then where are the physical inventory builds? That’s what happens when supply remains constant and demand falls. Yet, inventories of crude and product are near multiyear lows in the US. Many southeastern states still don’t have any gasoline.

Don’t worry though, eventually the futures market has to reconnect with the physical, and that’s where I believe gold is going to explode. We got a small taste of this, if you will recall, last month, when the crude oil contract expired and jumped around $15 in a day (I can’t recall the exact amount) because financial players were forced to buy back the crude or come up with crude to deliver, which they didn’t have.

Perth Mint sold so-called Kangaroo and Nugget coins weighing a total of 62,630 ounces in the three months to Sept. 30, compared with 154,501 ounces for the 12 months to June 30, senior manager Bron Suchecki said in an interview from Perth, Australia yesterday, adding there’s been a surge in “moms and dads” buying over the counter in the past three months.

“It’s reflecting a real breakdown in trust in financial products,” Suchecki said at the mint. “People aren’t thinking `how do I grow my wealth’ but `how do I protect it.”’

Gold for immediate delivery has jumped 10 percent in the past week as investors pulled a record $52.1 billion from U.S.-managed stock and bond mutual funds. The U.S. Mint and Austria’s Muenze Oesterreich AG are among coin makers to increase production.

The electronic eyes feed images to a monitoring unit, where they’re scanned and stored as evidence to prosecute people who discard garbage or fail to clean up after pets, a spokeswoman for the town council said.

“It’s becoming a bit Big Brother-like,” said Sandra Roberts, 50, a Hastings kiosk manager, invoking George Orwell’s 1949 book “Nineteen Eighty-Four,” about a Britain where authorities pry into all aspects of citizens’ lives.

Local authorities are adopting phone-record logging, e-mail taps and camera surveillance to police such offenses as welfare fraud, unlawful dumping of waste and sick-day fakery. Telecommunications companies are about to join the list of crime monitors. Already, 4.5 million closed-circuit cameras watch public places across Britain, or about 1 camera for every 15 people, the highest ratio in the world.

“There’s too much of it now, all this spying,” said Ivor Quittention, 80, a retired owner of three hardware stores who lives in Hastings. The town’s spokeswoman, who declined to be identified, said spying is the most effective way of dealing with something residents complain about most.

The Regulation of Investigatory Powers Act, dubbed “the snoopers charter” by London-based civil-rights group Liberty, was passed by the ruling Labour Party in 2000 to legislate methods of surveillance and information gathering. The purpose of the law, known also as Ripa, was to help prevent crime, including terrorism, according to the Home Office.

`Too Much Power’

Initially, only security and intelligence services could invoke the Act’s provisions. In 2003, Parliament extended powers to the 474 local councils in England, Scotland and Wales, as well as to 318 other state bodies, including 11 Royal Parks, the Post Office and Chief Inspector of Schools.