LONDON: Oil fell by more than $2 on Monday on concerns over Europe's deepening debt crisis and slowing global growth.
Worries that Greece might default on its debts rose after finance ministers of the large industrialised economies pledged a coordinated response to the global slowdown but offered no specific steps to support their economies.
Brent crude oil fell as much as $2.25 per barrel to a low of $110.52 and was down more than 1.5 percent at $110.80 by 0734 GMT. US crude slid $2.18 to a low of $85.06.
Escalating risk aversion helped push the dollar up against a basket of currencies while stock markets fell in Asia and opened sharply lower in Europe.
"People are quite nervous about Greece and other countries in the European area, so that is why investors are escaping to the dollar," said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd. "It's risk aversion."
Greece on Sunday slapped a new tax on real estate to help plug a 2011 budget hole, please international lenders and secure a key new loan tranche as concerns mounted in Europe over its euro zone membership.
Vague pledges and a lack of action by Group of Seven industrialised nations underscored differences between Europe and the United States and a lack of room to manoeuvre in the face of the worst loss of confidence since the credit crisis.
Europe's woes hit shares in French banks especially hard, with Societe Generale , BNP Paribas and Credit Agricole all shedding 10 percent on fears over bank funding and after a source told Reuters on Saturday that France's top lenders were bracing for a likely credit rating downgrade from Moody's.
Fears about a Greek default rose after senior politicians in German Chancellor Angela Merkel's centre-right coalition started talking openly about it.
Investors were also looking at data showing China's implied oil demand in August slipped to its lowest rate this year, as maintenance and accidents cut into refinery production.
Fuel consumption in the world's No.2 user has been losing steam since May, with growth easing off the double-digits seen since last year because of higher crude costs that have squeezed refining margins and as Beijing's credit tightening moves cut into fuel spending.
Chinese inflation is still too high and the country needs to maintain its prudent monetary policy, the central bank said on Monday.
Still, on a year-on-year basis China's oil use expanded 7.8 percent, Reuters calculations based on preliminary government data showed on Saturday.
Hedge funds and other large investors cut their futures and options net long positions on the New York Mercantile Exchange by 5,780 contracts to 155,837 in the week to Sept. 6, the US Commodity Futures Trading Commission said on Friday.
Concern over damage to US Gulf oil infrastructure eased after Tropical Storm Nate made landfall in central eastern Mexico, with no other major weather disturbances expected to affect the hydrocarbon-rich region in the short term.
Nate weakened to a tropical depression on Sunday as it moved further inland, after cutting Mexican oil production by 178,800 barrels a day as of Friday. Mexico's Dos Bocas port re-opened to shipping on Sunday, but the crude-exporting hub of Cayo Arcas remained closed.
Oil markets were also eyeing production and exports of Libyan crude following the country's power transition. About 2 million barrels of very light crude oil have been offered via a tender, making it the largest volume to come to market since war erupted in February.
Libya has started producing oil again, the country's interim prime minister said on Sunday, promising that more of it would come online in the "near future".
Copyright Reuters, 2011