LONDON: Oil fell below $118 a barrel on Monday, pressured by concern over the euro zone debt crisis, although supply worries due to tightening Western sanctions on Iran checked the slide.
The outlook for Europe's economy worsened in April, raising the likelihood that oil consumption will slow. Fresh data for Germany, France and the euro zone showed a much faster rate of economic contraction than had been expected.
The wobbly financial state of big euro zone economies such as Spain and Italy has unsettled markets, despite signs at the start of the year that Europe's long-running debt crisis was easing.
Brent crude dropped $1.01 to $117.75 a barrel by 1103 GMT, while US crude was down 83 cents at $103.05.
Analysts say world oil markets may be poised for a downward correction.
"Supply outages and geopolitical concerns have supported crude, but barring a supply shock, upside is limited from here," said a Morgan Stanley research note. "Risks are skewed to the downside."
The United States and Europe have imposed sanctions on Iran aimed at halting its controversial nuclear programme by choking off its oil export revenues. Western governments fear Iran aims to develop nuclear weapons, while Tehran says its programme is for solely peaceful purposes.
Iranian oil officials say crude exports have slipped to 2.1 million barrels per day (bpd), compared with an average 2.3 million bpd in the last Iranian year that ended on March 19.
At a Group of 20 finance ministers' meeting in the United States last week, officials agreed to watch oil prices closely and carry out "additional actions" as needed.
Tightening sanctions on Iran helped send Brent above $128 a barrel in March, the highest since 2008.
China, one of Iran's top crude oil buyers, made sharp cuts in imports during the first quarter as companies haggled with Iran's state-run oil company over prices and contract terms.
March crude imports from Iran fell 54.1 percent from a year earlier to 253,302 barrels per day (bpd), customs data showed on Monday.
The European Union is also planning an embargo on Iranian oil imports from July 1. While a review is possible in the next two months, there is no economic reason now to change plans for the ban, a senior EU official said on Friday.
"On the supply side, Iran continues to be a risk which we can't ignore at all," said Ric Spooner, chief market analyst at Australia-based CMC Markets.
"It seems quite unlikely that we will be seeing any swift resolution to the standoff between the West and Tehran over their nuclear programme."
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