Oil prices sank to a three-week low of below $82 a barrel today, extending the previous session's fall of 2.7 per cent, as risk appetite soured across the board after investment bank Goldman Sachs was charged with fraud.
Goldman was charged by the US Securities and Exchange Commission (SEC) over its marketing of a subprime mortgage product. The news dragged down broad US equity indexes.
The banking powerhouse also saw pressure building on both sides of the Atlantic on Sunday, with Germany and Britain saying they would seek details from the SEC about Goldman's activities as a prelude to potential legal steps following a US-led fraud investigation.
US crude for May delivery fell $1.34 to $81.81 by 0622 GMT, after having dropped as low as $81.73 - the lowest since March 29. The contract already fell 2.65 per cent on Friday, the largest one-day percentage loss since February 5. London Brent crude fell $1.1 to $84.89.
"Oil prices have been rising very strongly but there has been a lot of skepticism on whether the rally can last because the fundamentals are still very weak," said Clarence Chu, a crude oil trader at Hudson Capital Energy in Singapore.
"The market was ripe for profit-taking and the Goldman news was the trigger."
Industry participants said another rationale for the sell-off was that Goldman, which has large positions across many markets including commodities, could be forced to liquidate some of its investments in the energy market if ordered to pay a hefty fine by the SEC.
Goldman has vowed to defend itself.
The fraud charges, along with disappointing earnings from heavyweights and a surprise drop in US consumer sentiment on Friday, gave investors an opportunity to take profits from the equities markets and pushed Asian stocks 1.6 per cent.
Tepid risk appetite also prompted the US dollar to rise, stretching gains in Asian trade on media reports that a wave of lawsuits was being planned against Goldman Sachs.
Analysts also pointed to the halt of flights to Europe as adding further downward pressure to oil prices, as five-day-old air travel crisis could hit jet fuel demand.
Oil prices have risen strongly in recent weeks, topping an 18-month high of above $87 earlier this month, as robust economic data buoyed hopes of a demand recovery.
But some analysts have said that prices have run ahead of demand fundamentals, while a senior analyst at the International Energy Agency said on Friday that oil prices at $85 per barrel could endanger the fragile global economic recovery.
On the geopolitical front, markets may keep an eye on Iran today after Pentagon officials said US President Barack Obama's national security advisers are considering a range of options to curb Iran's nuclear programme, among them military strikes, if diplomacy and sanctions fail.
Reuters