Oil prices fell 2 percent on Monday as concerns about the eurozone sovereign debt crisis sent investors out of commodities and into safer havens. The Reuters-Jefferies CRB index, a global benchmark for commodities, lost 1 percent and equities dropped as the dollar surged to a two-month high against the euro.
Traders were weighing heightened risks in Spain and Greece and fresh concerns about Italy. "The eurozone appears to have triggered this morning's sell-off," Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois, said in a research note. "Dollar strength against most currencies is driving a renewed 'risk-off' response."
Early pressure on oil prices came from data showing China's factories expanded at their slowest pace in 10 months, adding to evidence that the economy is moderating as a tighter monetary policy starts to bite. Brent crude for July delivery fell $2.29 to settle at $110.10 a barrel, ending below the 100-day moving average and falling intraday as low as $108.58.
US July crude dropped $2.40 to settle at $97.70 a barrel, finishing below the 100-day moving average and having fallen to a low of $96.37. Investors eyed support above the $94.63 low for May and the 200-day moving average of $90.05. US crude trading volumes remained light, 36 percent below the 30-day moving average in post-settlement trading. Brent volumes trailed the 30-day average by 25 percent.
Recent tepid trading volumes have helped cause price swings, especially intraday volatility, analysts and traders said. The Chicago Board Options Exchange's oil volatility index rose 3.8 percent on Monday to 38.61 percent, reaching 40.66 intraday, still well below the 48.64 peak from May 5. US front-month June gasoline futures bucked the trend and settled 0.23 cent higher at $2.9381 a gallon, lifted by the shutdown of a gasoline-making unit at a Canadian refinery and an emissions-related upset at Exxon's Joliet, Illinois refinery.
US June heating oil, the distillate benchmark, tumbled more than 7 cents as the June contracts continue to trade until May 31. Investors sought safer havens after a weekend wipe-out of Spain's ruling Socialists in regional and municipal elections raised fears of potential clashes over deficit curbs between central and local government as Madrid fights to avoid a bailout.
Added concerns came after Italy, which has the eurozone's biggest debt pile in absolute terms, was hit by a decision by credit ratings agency Standard & Poor's on Saturday to cut its outlook to "negative" from "stable". Fitch Ratings cut Greece's debt rating on Friday.
A drop in imports and increased refinery use are expected to have pushed US crude oil inventories lower last week, according to a Reuters survey of analysts on Monday. Gasoline and distillate stockpiles were estimated to be up slightly, by half a million barrels, the survey showed.