Oil dropped 3 percent on Monday, crashing below technical support levels as the reduction of the United States's top-tier credit rating hammered markets and stoked concerns of an economic slowdown.
Brent crude broke through the 200-day moving average after shedding nearly $10 a barrel so far in August, as more than 1,000 stocks on the New York Stock Exchange hit 52-week lows and the Standard and Poor's 500 Index tumbled 3.6 percent. <.N>
In the tumultuous aftermath of the U.S. downgrade from S&P, the world also is downgrading the oil market, said Phil Flynn, analyst at PFGBest Research in Chicago.
Brent crude fell $3.49 to $105.88 a barrel by 1:21 p.m. EDT, after falling as low as $105.43 a barrel. Brent broke below the 200-day moving average of $106.89 a barrel, after pushing through the key technical level during intraday activity on Friday before settling higher.
U.S. crude traded down $3.54 to $83.34 a barrel after earlier sliding 5 percent to its lowest intraday level since November at $82.52 a barrel.
The S&P downgrade added to concern about demand in the world's top oil consumer, where gasoline demand for July fell to the lowest level since 2003, according to data from the U.S. Energy Information Administration.
Investors are looking at the weakness in the stock market as it signals that oil demand will be hurt, said Joe Posillico, broker for MF Global in New York City.
Investors again flocked to gold as a safe haven, sending prices to a record over $1,700 an ounce, while selling off other commodities including grains and copper. The 30-year U.S. Treasury bond's price jumped more than 3 points.
Analysts warned oil prices could fall further if a second recession takes hold, but both Merrill Lynch and Goldman Sachs maintained their 2012 price forecasts.
We believe that WTI crude oil prices could briefly drop to $50 under a recession scenario, Merrill Lynch said in a note, but it maintained its 2012 average forecast for U.S. crude at $102 a barrel and its forecast for Brent next year at $114.
Technical indicators also suggested the selling may abate. U.S. oil dropped further below 30 on the 14-day relative strength index, which is often interpreted as a sign a commodity has been oversold. Brent crude again tested the 30 level.
Brent could revisit its August 5 low of $104.30 per barrel, as a medium-term downtrend was expected to develop further, while a bearish target at $81.35 was unchanged for U.S. oil, according to Reuters technical analyst Wang Tao.
(Reporting by Matthew Robinson, Edward McAllister, Robert Gibbons, Selam Gebrekidan and Gene Ramos in New York; Christopher Johnson in London and Manash Goswami in Singapore; Editing by David Gregorio)