Oil prices fell below $51 a barrel on Monday as stock markets sputtered, erasing early gains on expectations that rich nations' efforts to stimulate their economies may help end the global downturn sooner than expected.
U.S. stocks futures pointed to a lower open on Monday, reversing Asian and European markets in its wake after banks wiped out early gains on weakened investor sentiment.
U.S. light crude for May delivery was down $1.92 at $50.59 a barrel by 1325 GMT (9:25 a.m. EDT). London Brent crude fell $1.65 to $51.82 a barrel.
Japan said it planned to spend at least $100 billion more to help its economy survive the global crisis, as investors seized on signs that markets may have bottomed to buy stocks and commodities.
In a sign appetite for risk is increasing, gold prices fell more than 2 percent on Monday, slipping toward a two-and-half-month low.
Japan's Nikkei stock average hit a three-month closing high and European shares rose, tracking a late rally in the United States on Friday.
Analysts said oil has been following equity markets recently on improved sentiment after the U.S. Federal Reserve began implementing quantitative easing through the purchase of treasuries, but upcoming quarterly reports could dim enthusiasm.
While the market may have discounted a weak Q1, they will be on the lookout for Q2 perspectives in the upcoming earning reports, said Harry Tchilinguirian of Paribas.
Here, the prospects still look weak, implying that oil and equities can easily retrench from recent gains.
Goldman Sachs said in a note received by Reuters on Monday that crude oil price rallies would be short-lived until the second half of 2009 because of weak fundamentals.
It said recent oil price rallies had been fueled by optimism over future stabilization in the financial system and in global economic growth, but for the time being these rallies were unlikely to be sustained.
We continue to expect that a more stable demand environment, reinforced by the likely need for the industry to restock during second-half 2009, will help push the oil market into a sustained deficit later in the year, it said.
Although crude oil prices have risen roughly 16 percent so far this year, they are almost 60 percent below their high of more than $147 a barrel last July.
Analysts said investors might attempt to push oil toward the $55 mark this week, should U.S. stocks rally further on signs that the economic slump is abating and if the earnings season does not get off to a rocky start.
Oil rose nearly 11 percent last month and snapped two straight quarters of double-digit decline to rally 9.5 percent in the first quarter, thanks to a rally in global stock markets and OPEC's production cuts.
Crude oil speculators on the New York Mercantile Exchange cut net long positions in the week to March 31, data from the U.S. Commodity Futures Trading Commission showed on Friday.
(Additional reporting by Christopher Johnson in London, Fayen Wong in Perth, Angela Moon in Seoul; editing by James Jukwey)