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Crude skids more than 5 per centALY SONG/Reuters

Crude oil futures plummeted more than 5 per cent Wednesday, the biggest drop in nearly three months, as a weakening of the euro due to the worsening euro zone debt crisis triggered a broad commodities selloff.

Worries that the Organization of the Petroleum Exporting Countries lacked a mechanism to quickly trim production of individual member quotas, after agreeing on a high output ceiling, also prompted selling.

The selloff took away risk premium added to prices on Tuesday as "traders realized yesterday's rally that focused on the possible closure of the Strait of Hormuz, after some saber-rattling from Iran," had no firm basis, said Jim Wyckoff, a commodities market analyst based in Cedar Falls, Iowa.

In the commodities markets, copper fell nearly 5 per cent and gold tumbled about 3 per cent, battered by the weaker euro and as the stronger U.S. dollar nudged investors to trim holdings in a broad range of assets, including equities.

"Gold's sharp downturn was a driver for the selloff in other commodities," Mr. Wyckoff said.

U.S. crude oil inventories fell last week, government data showed, but the data was "basically in line with consensus estimates and will do little to change the bearish tone set by developments out of Europe", said Chris Jarvis, president of Caprock Risk Management in Rye, New Hampshire.

In London, ICE Brent crude for January delivery settled at $105.02 (U.S.) a barrel, down $4.48 or 4.09 per cent, the biggest one-day percentage loss for Brent since Sept. 22.

Brent broke below its 300-day moving average of $107.08 and hit a session low of $104.36, the lowest for front-month Brent since Oct. 6.

Nymex January crude settled at $94.95, falling $5.19, or 5.18 per cent, U.S. crude's biggest one-day percentage loss since Sept. 22.

Support broke down after the U.S. contract dropped below the 200-day moving average of $95.98 and settled at the lowest level for U.S. crude since Nov. 4.

Brent's premium against U.S. crude widened to $10.07 at the close, from $9.36 on Tuesday.

"Crude prices are down today as the euro weakened substantially against the dollar, with bad news coming out of Europe as last week's EU agreement is starting to unravel," said Richard Soultanian, co-president of NUS Consulting, a global energy management firm.

Reinforcing the difficulties facing some euro zone governments to raise funds, Italy sold €3-billion ($3.9-billion U.S.) of five-year government bonds on Wednesday at a yield of 6.47 per cent, up from 6.29 per cent.

The euro broke 11-month lows against the dollar below $1.30 after Rome's auction, with foreign-exchange markets still speculating that more rating downgrades were in prospect for euro zone governments.

OPEC agreed on a new supply target of 30 million barrels daily, roughly in line with current production in a deal that settles a six-month-old argument over output levels in Saudi Arabia's favour.

However, there was no mechanism in place to cut quotas should already-fragile demand grow less quickly than expected, and combined with a general bearish tone to the market due to funding worries, prices fell sharply.

Questions remain over whether the OPEC cap can be enforced, given that Libya is set to increase production substantially next year.

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