Oil prices fell nearly two percent Monday over fears that the world economy will remain weak and push down demand for crude.
West Texas Intermediate oil, which is used as a benchmark to price oil in much of the U.S., fell $1.30 to $96.37 in midday trading in New York. Brent crude, which is used to price many foreign varieties of price oil, fell $1.45 to $105.95 in London.
The global economy is under assault from several directions. The inability of Europe to deal with its crushing debt problems is raising concerns that the region will fall into recession. Also, as long as the crisis continues, the fear remains that the world financial system could seize up if European banks and banks with ties to Europe stop lending.
"The market's biggest concern is the ongoing strife in Europe and the uncertainty that brings," said Phil Flynn, an analyst at PFG Best in Chicago.
When the economy slows, demand for crude oil and refined products like diesel and gasoline falls because fewer goods are produced and shipped, and people travel less.
The U.S. national average for retail gasoline fell slightly to $3.351 from $3.359 on Monday, according to AAA, Oil Price Information Service and Wright Express.
Another concern is that the Congressional committee set up to reduce U.S. spending, known as the super committee, will fail to come up with a plan. That could lead to further gridlock in Washington at a time when the U.S. economy is fragile.
"The supercommittee isn't looking very super," Flynn said.
Oil is also being pushed lower by a stronger U.S. dollar. Oil is priced in dollars, so when the dollar becomes more valuable compared with other currencies, oil becomes more expensive to holders of foreign currency and they tend to buy less of it.
Benchmark U.S. crude spiked to nearly $103 a barrel last Wednesday after a pipeline company announced plans to try to relieve a glut of landlocked oil at a major hub in Oklahoma by shipping it to the gulf coast. Brent crude fell because the plan would add to supplies of oil that can be shipped by sea, relieving a relative shortage.
Now both are falling because economies around the world may need less oil no matter how it is delivered.
In other energy trading in New York, natural gas rose 7 cents to $3.39 per 1,000 cubic feet, gasoline futures lost a penny at $2.4715 a gallon and heating oil fell 4 cents to $2.9903 a gallon..
Jonathan Fahey can be reached at http://twitter.com/JonathanFahey