Oil prices fell 1.5 percent on Monday on worries a flu outbreak in Mexico could become a pandemic, hurting the global economy and hindering air travel.

U.S. crude oil futures for June delivery dropped 76 cents to $50.79 a barrel by 1620 GMT (12:20 p.m. EDT) after falling as low as $48.01 earlier in the day. London Brent crude fell 72 cents to $50.95 a barrel.

The flu outbreak in Mexico has killed more than 100 people and already spread to the United States and Europe, prompting fears of a pandemic that boosted the U.S. dollar.

The Mexican situation is resurrecting fears of the chilling impact that the SARS epidemic had on economic growth, said Edward Meir of broker MF Global in a research note.

The potential for a drop in jet fuel demand is also weighing on oil markets, Addison Armstrong, an analyst at Tradition Energy, said in a research note.

Airline shares were hit by expectations the flu outbreak could hurt air travel.

Gains in the dollar, a safe-haven in times of stress, also weighed on oil and other commodities, which tend to fall when the U.S. currency rises.


Oil is down about $100 a barrel from a record peak in July last year of more than $147.

The global recession and shrinking oil demand had pushed prices toward $30 a barrel earlier this year. They have recovered to around $50 alongside an equity market rally.

Commodity prices and returns have risen substantially since mid-February lows, Goldman Sachs said in a research note. We believe markets will likely continue to pullback from current levels in the near term, as fundamentals are not yet stable enough to support higher prices, the bank said.

As a result, we have opened tactical shorts in both the oil and metals markets in recent days.

The Organization of the Petroleum Exporting Countries has agreed to cut supply by 4.2 million barrels per day since September last year to try to prop up prices.

OPEC meets next on May 28.

Gulf oil producers said on Sunday they could tolerate moderate crude prices for longer to help revive global growth but shared a concern with consumer nations that a prolonged period of low prices could sow the seeds of a future fuel price spike.

(Additional reporting by Richard Valdmanis in New York, Fayen Wong in Perth; Editing by David Gregorio)