Oil prices fell 2 percent on Monday as concerns about the euro zone sovereign debt crisis sent investors out of commodities and into safer havens.
The Reuters-Jefferies CRB index .CRB, 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 euro zone 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 came from a purchasing managers index that showed China's factories expanding at their slowest pace in 10 months in May, adding to evidence that the economy is moderating as tighter monetary policy starts to bite.
U.S. front-month June gasoline futures bucked the trend and settled higher, lifted by the shutdown of a gasoline-making unit at a Canadian refinery.
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.
U.S. 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.
U.S. crude trading volumes remained light, 34 percent below the 30-day moving average in post-settlement trading. Brent volumes trailed the 30-day average by 24 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 4.1 percent on Monday to 38.73 percent, reaching 40.66 intraday, still well below the 48.64 peak from May 5.
In addition to the Canadian refinery problem, an emissions-related upset at Exxon's Joliet, Illinois refinery and a reported explosion at a Venezuelan refinery added support for U.S. gasoline futures.
U.S. June heating oil, the distillate benchmark, tumbled more than 7 cents as the June contracts continue to trade until May 31.
EURO ZONE WORRIES
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.
Additional concerns came after credit ratings agency Standard & Poor's on Saturday cut its outlook to "negative" from "stable" on Italy, which has the euro zone's biggest debt pile in absolute terms.
Fitch Ratings cut Greece's debt rating on Friday.
CRUDE OIL STOCKS SEEN LOWER
A drop in imports and increased refinery use are expected to have pushed U.S. 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.