NEW YORK ? Oil closed below the psychological barrier of $60 a barrel in New York Friday as the market focused on weak demand and risks of deflation amid a steep global downturn.

New York's main contract, light sweet crude for delivery in August settled at $59.89 a barrel, shedding 52 cents from its Thursday close.

In intraday trade the futures contract sank to $58.72, the lowest level since May 18 and nearly $15 below last week's peaks.

In London, Brent North Sea crude for August delivery dropped 58 cents to close at $60.52 a barrel.

The plunge in oil prices came almost exactly one year after the two contracts struck all-time highs above $147 on July 11, 2008.

Analysts said the bears were set to dominate the market for an extended period as the global economy grapples with the worst recession in decades, with no clear sign of recovery in view despite unprecedented efforts by governments to jumpstart growth.

"Sixty is not so nifty today as slowing demand fears now possess the energy complex," said Phil Flynn of PFG Best Research.

"The oil market reflects the darkening outlook for economic growth."

Mike Fitzpatrick of MF Global said that market participants "sharpened their focus on the still struggling global economy" where hopes for a swift recovery were diminishing rapidly.

"There have been few, if any, signs of sustainable economic growth," he said. "What can be quantified, though, are growing joblessness and rising savings rate, which suggests that consumers, who have led past recoveries, are still in a state of shock."

The International Energy Agency, in a report Friday, forecast demand would be effectively unchanged this year before rebounding by 1.7 percent in 2010.

The IEA report highlighted "the uncertainty swirling around the oil market for 2009, 2010 and beyond."

Flynn said that deflation fears had again trumped inflation fears in the market.

"Unless there is a major change in the economic outlook or some immediate stimulus, the bears will again rule" into the end of this year, he added.

Possible regulatory changes in the United States also were weighing on the market, analysts said.

Barclays Capital analysts said in a client note that the market was under pressure from "a significant increase in both regulatory risk and in the price volatility related to what in the worst case could prove to be an extended period of regulatory uncertainty."