 "Oil heads toward bear market amid Iran talks, economy risks")
Iran's determination to seal a nuclear deal with global powers to bring more of its crude oil to an oversupplied market and the restart of a key oil terminal in Libya also weighed on oil prices.
Investors fled to the relative safety of the dollar and US bonds as Greek banks ran down to their last few days of cash after its people rejected an international bailout while Chinese equities extended their haemorrhage, ignoring a slew of support measures from Beijing.
Gold fell to a near four-month low on Tuesday. The metal, usually seen as an alternative investment in times of financial and economic uncertainty, has so far failed to see significant safe-haven buying due to the ongoing Greek crisis as fears of contagion seem to be limited, traders said. Spot gold dropped to its lowest since March 18 at $1,154.45 an ounce earlier and was down 1 per cent at $1,158.15 an ounce by 1341 GMT, while US gold futures dropped 1.5 per cent to $1,155.90 an ounce.
Copper prices crashed to a six-year low. Nickel slumped 10 per cent, its biggest one-day percentage fall since May 2010. Aluminium touched a six-year low at $1,662 and zinc hit $1,925, its lowest since December 2013.
The dollar hit a five-week high, weakening demand for dolllar-denonimated commodities from users of other currencies. "The US dollar and Treasuries are what people are buying right now," said David Thomson, executive vice-president at Powerhouse, an energy-specialised commodities broker in Washington.
US crude was down $1.15, or 2.2 per cent, at $51.38 a barrel by 11:25 am EDT (1525 GMT), after falling almost $2 at the session low.
US crude has lost almost 10 per cent since Thursday's close for the sharpest two-day fall since 2011. It is teetering toward a bear market technically, having lost almost 20 per cent from a high above $62 just a month ago. More downside momentum could push it to test the six-year low of $42.03 set in mid-March, technical analysts said.
Brent crude fell 93 cents, or 1.6 per cent, to $55.61.
"There has been a lot of money looking to pile into the short-side, and there have been an accumulation of different triggers to cue that over a short time. Some were looking at Iran; for some it is macro spill overs from Greece or China; for others it's a pure dollar play, and for others the rise in US rig counts," said Paul Horsnell, head of commodities at Standard Chartered in London.
"None of those work in isolation, but put them all together in a short period and they'll do it. And after that, the technicals kick in to give a further push down."
Oil prices have slumped 17 per cent from last month's high in New York, nearing the 20 per cent drop defined as a bear market. The euro slid to a five-week low versus the dollar, dulling investor demand for commodities priced in the US currency, as finance ministers met to discuss Greece's fate.
"There's just a lot of negative headwinds on the macro side," Francisco Blanch, head of commodities research at Bank of America Corp, said in an interview on Bloomberg Television's Surveillance. An Iran deal would be "a huge factor for the oil market ". After almost two years, diplomats say they're closer than ever to sealing an accord that would help Iran lift sanctions and boost trade.
US Secretary of State John Kerry and Iranian Foreign Minister Mohammad Javad Zarif held talks until early Tuesday in Vienna, along with their counterparts from China, France, Germany, Russia and the UK.
World powers and Iran extended the terms of an interim accord from midnight Tuesday until July 10, US State Department senior advisor Marie Harf said in an e-mail.
"The market's preparing itself for more oil to come," said Bill O'Grady, chief market strategist at Confluence Investment Management in St Louis, which oversees $3.4 billion. "The euro's drop is contributing to oil's weakness."
Iran's plan to sell more crude remains a long way off, Goldman Sachs Group Inc, Bank of America Corp and Societe Generale SA said last week. Its goal of boosting exports by 50 per cent would require an extra 500,000 barrels a day of production, which the banks project will take six to 12 months as the country revives aging oil wells. "If an Iran deal happens, I won't be surprised to see oil fall further," said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors.