Oil prices extended losses this morning, falling about 2 per cent towards $49 a barrel after a report that Citigroup and Bank of America may need to raise more capital, renewing worries about the financial sector.
A rising death toll from a flu outbreak is already fanning fears of a pandemic potentially hurting the world economy and air travel.
US oil futures fell $1 to $49.14 a barrel by 5.02am, adding to last night's losses of $1.41. London Brent crude was down $1.03 at $49.29.
“Banking woes are adding to swine flu jitters, and both are seen trampling any recent talk of an economic recovery,” said Michelle Kwek, an analyst at Informa Global Markets.
“This is a double whammy and the news is throwing markets back into an overdrive of risk aversion.”
US regulators have told Citigroup and Bank of America they need to raise more capital following the results of recently concluded "stress tests", the Wall Street Journalsaid, citing people familiar with the situation.
S&P futures extended losses on the report, while the US dollar fell to the lowest in a month against the yen on risk aversion.
Worries about the potential economic fallout from the swine flu outbreak are also raising concerns about the impact on oil demand.
Swine flu, a new virus that contains avian and human components, has killed up to 149 people in Mexico and world health experts moved closer last night to declaring it the first flu pandemic in 40 years as more people were infected in the United States and Europe.
Reminiscent of the Asian bird flu earlier in the decade, a swine flu outbreak could be a major setback to the already fragile world economy.
The World Bank estimated in 2008 that a flu pandemic could cost $3 trillion and result in a nearly 5 per cent drop in world gross domestic product.
Oil prices have recovered from about $35 a barrel in February to hover around $50 for most of this month, tracking a rebound in equities markets.
But some analysts have cautioned that oil prices could pull back from current levels in the near term as demand remains weak and fundamentals do not support higher.
Reuters