Oil prices fell over 2 per cent towards $50 a barrel today, paring some of the previous session's near 4 per cent gain on fears of a global flu pandemic that could give the world economy another knock.
Any major widening of a flu outbreak that brought Mexico's capital city to a halt over the weekend, with new cases also cropping up in other countries, could hit air travel and further slow economies already struggling with the fallout of the credit crisis.
Investors moved out of the stock markets and risky assets, heading for traditional safe havens like gold, with the impending release of US bank "stress test" results, a Federal Reserve meeting and a flood of earnings due later this week also heightening caution.
US crude oil futures for June delivery fell $1.22 to $50.33 a barrel by 5am, erasing some of Friday's gains of $1.93 that brought the contract to settle at $51.55.
London brent crude fell 96 cents to $50.71.
“The swine flu in Mexico is causing some risk aversion in the markets and is already weighing on the Dow,” said Ben Westmore, a commodities analyst at the National Australia Bank.
Worries of a global swine flu pandemic grew over the weekend with new infections in the United States and Canada discovered yesterday.
Reminiscent of the Asian bird flu earlier in the decade, a swine flu outbreak could become a major setback to the already fragile state of the world economy, research firm Informa Global Markets said in a report.
The US dollar fell to its lowest in a month against the yen as worries about the spread of the flu from Mexico sent investors into perceived safe-haven currencies such as the yen and the Swiss franc.
Asian shares were also lower, with airlines and transport companies particularly hard hit.
Oil prices, which have largely stagnated around $50 a barrel for most of this month, have been tracking equities closely in recent weeks as investors looked to stocks for signs of an economic recovery that could revive demand for fuel.
Gulf oil producers said yesterday they can tolerate moderate crude prices for longer to help revive global growth, but shared a concern with consumer nations that a prolonged period of low prices could sow the seeds of a future fuel price spike.
Reuters