TOKYO: Brent crude dropped more than $1 to below $109 a barrel on Monday in its steepest fall in nearly three weeks as the dollar strengthened after an unusual bailout proposal for Cyprus threatened to trigger fresh turmoil in the euro zone.
News that Cyprus would have to tax depositors as part of a bailout plan sparked fears of a run on some banks in the region, driving down the euro and other riskier assets such as Asian shares and base metals. A string of positive numbers from the world's top oil consumer the United States and ongoing supply disruption worries still helped stem further losses in oil.
Brent futures fell $1.28 a barrel to $108.54 a barrel by 0414 GMT, sliding nearly 1.2 percent, the most in one session since Feb. 26.
US oil declined $1.22 at $92.23, slipping 1 percent, the most since March 1.
"Investors are worried that the Cyprus tax plan will set precedence for other EU nations that require bailout," said Victor Shum, senior partner at IHS Purvin & Gertz in Singapore. "But positive economic numbers out of the US and issues with Iran's nuclear programme will support oil."
Oil markets will remain volatile for the next few days as investors watch for any spillover of the developments in Cyprus to other EU nations, with the US benchmark supported at $90 a barrel and Brent at $105, Shum said.
In a radical departure from previous aid packages, euro zone finance ministers want Cyprus savers to forfeit a portion of their deposits in return for a 10 billion euro ($13 billion) bailout for the island, which has been financially crippled by its exposure to neighbouring Greece.
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