Brent crude slipped to $104 per barrel on Monday as fears about the global economy returned to the forefront due to worries that Spain may not be able to avoid a costly sovereign bailout, which could impact on oil demand.
Riskier assets including equities and the euro fell on fears that Spain, the euro zone's fourth-largest economy, may need a lifeline from international lenders after two indebted regions sought financial assistance from the central government.
Brent crude was down $2.13 at $104.70 per barrel by 0641 GMT, after brushing an intra-day low of $104.54. Brent prices had posted a fourth straight weekly gain in the previous session.
U.S. crude fell $2.06 to $89.77 per barrel.
"Oil prices had a good run up last week, so we are mostly seeing a bit of profit-taking happening with Spain back in focus," said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.
"There is also a bit of nervousness in the market ahead of data coming out this week as things could change very quickly in the next 24 hours."
Traders are awaiting manufacturing data from China and Europe, due on Tuesday, for further clues on the health of the global economy and its impact on oil demand.
A stronger dollar also pressured oil prices, which are priced in the U.S. currency.
Further adding to softness in oil markets, U.S. demand for crude oil, gasoline and distillates fell in June from a year earlier, the industry group American Petroleum Institute said in a report.
The API attributed the drop to a slowing U.S. economy.
Greece, which until last month was at the centre of the euro zone debt crisis, said it was in a "Great Depression" similar to the United States in the 1930s, two days before international lenders arrive in Athens to push for additional cuts needed for the debt-laden country to qualify for further rescue payments to keep it afloat.
Greece's ability to meet financial obligations set by its creditors is going to be in the spotlight in the week ahead.
"This could have a significant impact on commodities, equities, and currencies this week. If fears rise, commodity prices are likely to fall as the dollar rises," Jason Schenker at Prestige Economics wrote in a note.
European Central Bank President Mario Draghi, however, showed confidence in the single currency, saying the euro bloc was not in danger of breaking up, judging that it was inevitably marching towards closer union among its members.
West Asian supply concerns
Caution about potential supply disruptions in the Middle East, which drove oil prices up last week, lingered as violence in Syria intensified.
The "great threat" to Israel from the Syrian conflict is that the Damascus government may collapse and its stock of chemical weapons and missiles fall into the hands of the Lebanese Islamist group Hezbollah, Israeli Prime Minister Benjamin Netanyahu said on Sunday.
Iran has sent a new batch of enriched uranium to fuel a medical research reactor in its capital, the country's nuclear chief said on Sunday, an indication Tehran is digging in as its standoff with world powers over the enrichment continues.
Adding to supply concerns, firefighters in southeast Turkey on Saturday put out a fire on a pipeline carrying about a quarter of Iraq's oil exports, but it was unclear when oil would resume flowing, security sources said.
