Oil futures close down below $98 a barrel in New York. Oil futures fall as dollar strengthens.
Oil dropped more than 2 percent Monday as the dollar strengthened and an energy research group said it expected the growth in Chinese demand for oil to slow later this year.
At the pump, gas prices continued to fall as oil retreated.
Benchmark crude for July delivery lost $2.40, or 2.4 percent, to settle at $97.70 per barrel on the New York Mercantile Exchange. In London, Brent crude gave up $2.29 or 2 percent, to settle at $110.10 per barrel on the ICE Futures exchange.
Crude dropped as the dollar rose against other currencies. Oil is priced in dollars, and it tends to fall as the dollar rises and makes crude more expensive for investors holding foreign money. The U.S. Dollar Index, which measures the dollar against other major currencies, rose 0.7 percent amid concerns about Europe's debt crisis.
Last week credit ratings agency Fitch downgraded Greece again and Standard & Poor's lowered Italy's ratings outlook. The euro tanked on a combination of credit rating downgrades, a big election defeat for Spain's governing party and disagreements among top European officials on how to deal with the financial crisis.
Meanwhile Platts, the energy information arm of McGraw-Hill Cos., reported Monday that the rapid rise in China's oil consumption slowed in April. China consumed 9.37 million barrels per day in April, up 8.3 percent from the same period last year, but down from the 10 percent average growth in the first quarter of this year.
A decelerating economy and high oil prices were "denting end-user demand" in China, Platts said. China is the second biggest petroleum consumer in the world behind the U.S.
Other government and industry data show that gasoline demand in the U.S. has declined for two months as pump prices rose above $4 per gallon in many states. The Platts report suggests that international gasoline demand also has been hurt by higher prices.
"You have to ask how unrealistic it's been that prices have been pushed up to this level," analyst and trader Stephen Schork said. "There could be further weakness in this market."
Gasoline pump prices dropped nearly a penny to a new national average of $3.843 per gallon a few days before the Memorial Day weekend and the unofficial start of the summer travel season. A gallon of regular is 1.3 cents lower than it was a month ago and $1.04 higher than a year ago. Analysts say prices could tumble to $3.50 per gallon by June.
In other Nymex trading, heating oil lost 7.12 cents to settle at $2.8471 per gallon and gasoline futures added 0.23 cent to settle at $2.9381 per gallon. Natural gas gained 10.3 cents to settle at $4.393 per 1,000 cubic feet.