Growing concern about the U.S. and European economies weighed on oil Monday as prices fell nearly 2 percent.
Benchmark West Texas Intermediate crude for August delivery gave up $1.31 to settle at $95.93 per barrel on the New York Mercantile Exchange. In London, Brent crude lost $1.21 to settle at $116.05 per barrel on the ICE Futures exchange.
Traders worried that Greece's debt crisis could spread to other European countries and further undermine already weak economic growth there. The price of oil fell as the dollar rose against the euro and other major currencies. Oil, which is priced in dollars, tends to drop as the greenback strengthens and makes oil more expensive for investors holding foreign currency.
Meanwhile analysts said concerns are growing about the U.S. economy as lawmakers fight over government spending plans ahead of an Aug. 2 deadline to raise the nation's debt ceiling. Without that authorization from Congress, the U.S. faces default on its massive debt obligations. Ratings agencies have put the U.S. credit rating on downgrade watch. While seen as unlikely, a U.S. default would have serious repercussions on the global economy.
It's making everyone "twitchy nervous," said Michael Lynch, president of Strategic Energy & Economic Research. "Default would lead to higher interest rates and possibly a double-dip recession."
Oil prices jumped to three-year highs earlier this year as world demand grew and turmoil in the Middle East and North Africa shut down Libyan oil exports and threatened shipments elsewhere. While those conditions remain, energy analysts say they're increasingly focused on the sluggish economies of the U.S. and Europe.
High unemployment, tight credit and other economic troubles in the West could keep oil prices from moving much higher in the near term, analyst Stephen Schork said. However the Energy Department, OPEC and the International Energy Agency have all said that global demand for oil should reach record levels this year, as booming economies like China and India consume more and more oil. That could eventually drive prices higher.
At the pump gasoline prices were unchanged Monday at $3.676 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of gasoline is 31 cents cheaper than peak levels set earlier in May, but it's still 95.3 cents more expensive than the same time last year.
In other Nymex trading for August contracts, heating oil fell 4.103 cents to settle at $3.0777 per gallon and gasoline futures lost 3.19 cents to settle at $3.0974 per gallon. Natural gas added less than a penny to settle at $4.524 per 1,000 cubic feet.