LONDON: Oil fell more than $1 per barrel on Monday as worries over the restructuring of euro zone debt and doubts about the pace of global growth encouraged investors to reduce risk.
The euro dropped to its lowest since March ahead of a meeting of euro zone finance ministers on Monday to try to sort out the bloc's debt crisis and on how to handle Greece, which investors fear is at risk of default.
Silver and other commodities fell while European stock markets opened lower and US Treasuries markets rose as risk aversion spread through global markets.
President Barack Obama warned Congress in remarks broadcast on Sunday that failing to raise the US debt limit could lead to a worse financial crisis and recession than 2008-09 if investors began doubting US credit-worthiness.
US crude futures for June fell almost $2 per barrel to a low of $97.71 before recovering slightly to trade around $98 by 1100 GMT. Brent crude for June was down $1.38 at $112.45.
The euro fall was compounded by news IMF chief Dominique Strauss-Kahn had been charged with sexual assault, increasing uncertainty on aid for Greece and other indebted euro zone countries.
"The arrest of the IMF chief obviously weakens the perspective of the euro, given the bank's massive involvement in bailout measures. And with a strengthening dollar, oil prices come under pressure," said David Wech from JBC Energy.
Dollar-denominated commodities often move inversely to the dollar and a stronger US currency typically pressures oil.
BAILOUTS
"The rise of the dollar and weakness of the euro are conditioning all financial markets today," said Carsten Fritsch, commodity analyst at Commerzbank. "The market is less worried about Middle East unrest now and is focusing on oil demand, and there are signs that it is being undermined by high prices."
Both Brent and US oil futures are technically neutral, according to Reuters market analyst Wang Tao, but Brent is biased to fall towards $105.21 per barrel and US oil is trapped within a range of $95.40-$100.75 per barrel.
Euro zone finance ministers are likely to back a bailout package for Portugal on Monday. The meeting was also expected to pressure Greece to announce more austerity steps to secure further emergency funding.
"Concern over the European economy is weighing on the euro and supporting the dollar," said Jonathan Barratt, managing director at Commodity Broking Services. "A stronger dollar in turn is weighing on commodity prices."
Investors were also looking at monetary tightening by China to gauge the impact on global oil demand.
China has lifted bank reserve requirements eight times and raised interest rates four times since October in a bid to put a lid on rising prices. But it needs to raise rates further to rein in inflation, Li Daokui, an adviser to the People's Bank of China, said on Monday.
Unrest in the Middle East and North Africa is helping support oil and investors still worry the turmoil could spread to other oil-exporting nations in the region.
Gunmen on motorcycles attacked a car belonging to the Saudi Arabian consulate in the Pakistani city of Karachi on Monday killing a Saudi diplomat, police and the Saudi ambassador said.
Saudi Arabia is the world biggest oil exporter and any signs that its security is threatened could have an impact on global oil prices.
Investors were also watching flooding on the Mississippi after US Army engineers opened a key spillway to relieve flooding along the river.
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