Oil prices fell more than $1 to below $59 a barrel on Monday, slipping toward a seven-week low on concerns about the state of the global economy as equities markets tumbled.
Oil prices dropped 11 percent last week in their biggest weekly decline since late January as investors talked of the possibility of another dip in economic activity before the onset of recovery, which could delay a rebound in demand for fuel.
Crude oil for August delivery was down 50 cents at $59.39 by 0837 GMT, after earlier falling $1.01 to a low of $58.88. London Brent fell 40 cents to $60.12.
Economic concerns are continuing to weigh on oil prices. The rally we saw last month was clearly overdone, said Daniel Liu, an energy strategist at MF Global Singapore Pte Ltd.
We believe oil prices will see a further correction to fall to around $55, before they bounce up when confidence on the global economy returns to the market.
Oil shot up 40 percent last quarter and touched an eight-month high of above $73 a barrel as investors shrugged off weak fundamentals and banked on swift global economic recovery.
But a recent slew of bearish data around the globe, which suggested that some of the world's largest economies were still struggling, prompted a sell-off in both oil and equities.
JAPANESE CONFIDENCE RISES
European shares hit an 11-week low on Monday, led down by banks and miners as worries over company earnings forced investors to scale back trading positions. The FTSEurofirst 300 <.FTEU3> index of top European shares was down 0.9 percent at 807.34 points by 0712 GMT.
Oil fell on Monday despite data showing Japanese consumer confidence improved in June and a measure of companies' capacity utilization rose for May, indicating the world's third-largest energy consumer may be past the worst of its deepest recession since World War two.
Analysts said oil would continue to track equities markets in the short term. And with Wall Street's rally stalled, this week could be crunch time as big banks' earnings, including Citigroup's
Key economic data from China, including gross domestic production in the second quarter, industrial output and retail sales, due to be released on Thursday, will also be keenly watched by investors.
Analysts at BNP Paribas said oil prices could see more corrections in the short term as external factors which have helped oil's recent rally, including a weak U.S. dollar and rising equities, are set to reverse course.
Focus will shift back to oil fundamentals which remain weak -- oil demand will contract with the world economy, and OPEC has a large inventory hurdle to overcome, BNP's Harry Tchilinguirian said in a report.
Investors have also been made cautious by U.S. government moves to reign in speculation in energy and metals markets, while the Commodity Futures Trading Commission could have new regulations in place by late October.
In Nigeria, a top rebel leader is expected to be freed early this week, his lawyer said on Sunday, but analysts said his release might not lead to a significant drop in militant attacks in Africa's biggest oil sector.
(Additional reporting by Fayen Wong in Perth; editing by Keiron Henderson)