The price of oil fell below $84 a barrel Monday, unwinding some of the massive gains made Friday, when investors cheered the latest EU plans to tackle the continent's debt and economic woes. Signs of an economic slowdown in China also weighed on markets.
By early afternoon in Europe, benchmark oil for August delivery was down $1.35 at $83.61 a barrel in electronic trading on the New York Mercantile Exchange.
In London, Brent crude for August delivery was down $1.50 at $96.30 per barrel on the ICE Futures exchange.
On Friday, crude soared $7.27 to close at $84.96 in New York after the leaders of the 27 European Union countries said that they would seek to centralize regulation of European banks and, if necessary, bail them out directly, instead of funneling loans through governments that already have too much debt.
The EU said it also plans to ease borrowing costs for Italy and Spain, the third- and fourth-largest of the 17 economies that use the euro, stop mandating painful budget cuts to every country in need of emergency financial aid and tie their budgets, currency and governments more tightly.
While markets cheered the measures, experts noted Europe's economy remains weak, with unemployment hitting a new high of 11.1 percent in May. Investors will be closely watching economic indicators in coming weeks as well as how EU finance ministers hash out the details of their plans.
"We've been burned before," energy trader and consultant The Schork Group said in a report. "Wasn't Greece supposed to be stabilized in 2009, 2010, 2011?"
Evidence of a weakening Chinese economy also dented confidence in commodity markets. Chinese industrial production fell to a seven-month low, according to HSBC's purchasing managers' index.
Oil prices were also weighed down by the strengthening dollar, which makes crude a less attractive investment for traders using other currencies. The euro was down to $1.2601 from $1.2646 on Friday in New York.
On the bullish side, analysts mentioned the EU embargo on Iranian oil exports which went into full effect on Sunday as the West seeks to compel Tehran's nuclear program to accept closer international oversight.
"This weekend marked the official beginning of the EU's embargo on Iranian crude exports, which will not only see a full halt to purchases of Iranian barrels by buyers in the EU, but will also make acquiring shipping insurance for vessels carrying Iranian supplies considerably more difficult," noted a report from JBC Energy in Vienna.
In other energy trading, heating oil was down 4.05 cents at $2.6694 per gallon while gasoline futures fell 3.98 cents at $2.5920 per gallon. Natural gas slid 3.9 cents at $2.785 per 1,000 cubic feet.