Oil prices fell more than $2 a barrel on Monday to under $122 a barrel after top exporter Saudi Arabia said it had cut output because it lacked buyers, and the dollar strengthened against the euro on eurozone debt fears.
The kingdom reduced output by 800,000 barrels per day (bpd) to 8.292 million bpd in March from February, Saudi Oil Minister Ali al-Naimi said on Sunday, describing the market as oversupplied.
Kuwait's oil minister on Monday added that high oil prices could form a significant economic burden for many import-dependent countries.
Brent crude was down $1.59 cents at $121.89 a barrel by 1228 GMT after earlier falling over $2 to an intraday low of $121.40. U.S. crude slipped $1.58 to $108.08, having traded as low as $107.78 a barrel.
Carsten Fritsch, an analyst at Commerzbank in Frankfurt, said the market was down in reaction to the Saudi statement.
They said they made the cut because of over-supply and weak demand. That should further the discussion as to whether high oil prices are starting to dampen oil demand, Fritsch said.
On Monday, Naimi warned of continued weakness in the global economy. The recovery remains patchy, he said.
Oil prices fell early last week on concerns that demand is eroding under pressure from high prices, but rebounded on Friday following encouraging U.S. economic data.
Christopher Bellew, am oil trader at Bache Commodities in London, cautioned against reading too much into Monday's price dip. I'd be surprised if prices weren't quite a bit higher by Thursday night (ahead of the Easter weekend), he said.
Michael Hewson, an analyst at CMC Markets, also thought the price fall was just a blip. We did have a significant move upwards on Friday so some sort of pull-back is fairly normal.
Hewson detected a change in tone in the Saudi statement compared with previous announcements, and argued that it should in fact prove supportive, helping to put a floor under oil prices at a higher level.
There are some concerns about unrest in the Middle East and given the fact that they've just bunged $35 billion at their population, it suggests they need a higher oil price to generate the revenues to offset that, he said.
In Libya, forces loyal to Muammar Gaddafi bombarded Misrata with rockets and artillery and pounded the insurgents' eastern frontline outpost of Ajdabiyah, rebels said.
The oil market is still seeking a close replacement for very high quality Libyan sweet crude oil lost due to the conflict in the North African nation, OPEC Secretary General Abdullah Al-Badri said on Monday.
EURO BAILOUT FEARS
The dollar strengthened against the euro after Finnish voters handed the anti-euro party True Finns a crucial role in parliament and Greece was forced to deny a report that it had sought to restructure its debt.
A stronger dollar <.DXY> makes oil more expensive for buyers using other currencies.
The True Finns have said they will oppose a bailout for Portugal, and Finland requires parliamentary approval to participate in any bailout package.
It shows rising resistance in countries that are supposed to give the money, said Fritsch.
CMC's Hewson said that on the flip side, inflationary concerns are limiting price rises: China raised its bank reserve requirement ratios for the fourth time this year at the weekend and the rhetoric from the governor of the People's Bank of China was slightly more hawkish.
Markets are also looking to corporate earnings this week. Citigroup reported a 32 percent fall in profit in the first quarter on weak revenues.
Eurozone consumer confidence figures for April, which should have come on Monday, have been delayed until April 19, the European Commission said.
(Additional reporting by Francis Kan in Singapore and Alex Lawler in London; editing by James Jukwey)