Oil prices fell more than 3 per cent toward $77 a barrel on Friday, pressured by bearish economic data that dented confidence about a potential recovery in energy demand.

Weaker US consumer sentiment in October and consumer spending cuts in September served as a reminder that the economy is still struggling, following Thursday's optimism about US GDP growth in the third quarter.

US crude for December delivery dived $2.70 to $77.17 a barrel by 1:55 pm EDT. London Brent crude fell $2.60 to $75.44.

'Crude futures are correcting downwards as the stock market is getting hammered on negative economic data, mostly on lower consumer spending,' said Mark Waggoner, president of Excel Futures in Huntington Beach, California.

US stock indexes fell on Friday, after their best gains in three months on Thursday.

US consumer spending fell 0.5 per cent in September, the first fall in five months, according to data from the Commerce Department released Friday.

And in October consumer sentiment slipped as Americans continue to worry about their finances, the latest Reuters/University of Michigan consumer survey showed on Friday.

Higher equities and a weaker dollar have pushed crude prices higher up 12 per cent so far in October as investors look to wider macro economic data for signs of economic recovery and a potential rise in energy demand.

A stronger US dollar against the euro contributed to oil's losses on Friday, analysts said. Oil prices tend to fall when the dollar rises as it makes the dollar-denominated commodity more expensive for holders of other currencies.

Brimming inventories

Exxon Mobil Corp, Royal Dutch Shell Plc and Eni SpA dashed hopes for an imminent turnaround for the oil industry on Thursday, saying sluggish economic recovery was weighing on energy demand and prices.

Chevron Corp also posted a 51 per cent drop in quarterly profit on Friday.

Bearish comments from oil firms followed data on Wednesday showing a surprise build in US gasoline inventories.

Global oil product stocks stored at sea are also brimming, with floating storage estimates near 80 million barrels. - Reuters