Crude-oil futures tumbled below $40 a barrel Monday, surrendering more than 6% as the global economic downturn fueled fresh concerns about a sharp slowdown in energy demand.
Crude for February delivery fell $2.62, or 6.4%, to $38.23 a barrel in electronic trading on Globex. Earlier, the contract skidded to an intraday low of $37.92 a barrel.
"The demand destruction amid continued weakness in the global economy, coupled with excess supply in the market at the moment, is likely to continue to dominate sentiment," said Nimit Khamar, analyst at Sucden Financial Research.
Crude prices remain "susceptible to further declines, even a test toward recent lows before some base is established," he wrote in a research note.
On Friday, crude futures fell 2% to end the week with their biggest weekly loss in five weeks, after a government report showed that the U.S., the world's biggest oil consumer, lost the most jobs -- nearly 2.6 million -- during 2008 than in any year since World War II.
For the week, oil ended down 12%, the biggest percentage decline since the first week of December, when the benchmark contract tumbled fully 25% over five sessions.
Also on Globex, February reformulated gasoline sank 4 cents, or 4%, to $1.07 a gallon, while February heating oil dropped 3 cents, or 2%, to $1.46 a gallon and natural gas for February delivery lost 7 cents, or 1.2%, to $5.45 per million British thermal units.
Energy traders also kept an eye on the gas dispute between Russia and Ukraine as well as the latest on the conflict between Israel and Islamist militant group Hamas in the Gaza Strip.
The Czech presidency of the European Union said Monday that Russia has promised to restart natural-gas exports to Europe via Ukraine starting Tuesday morning, in the wake of a deal signed on monitoring the transit route for Russian gas.
A bitter dispute between Russia and Ukraine has cut off gas supplies to numerous European countries at a time of very low winter temperatures. In Brussels Monday, an agreement was signed between Ukraine, Russia and the E.U. to deploy monitors to oversee the transit of Russian gas through Ukraine to the rest of Europe. See full story.
In the Middle East, Israel called up reservists to join the conflict against Hamas, while the group rejected a cease-fire proposal crafted by Egypt, according to media reports. Also on the diplomatic front, French foreign minister Bernard Kouchner said that any cease-fire should be overseen by European and other monitors, reports say. Read more.
"Clearly, the two crises do not have the same sense of urgency they once had, as participants have by now not only discounted the conflicts, but both issues seem to be relatively ring-fenced," said Edward Meir, an analyst at MF Global.
"Having said that, as long as the two conflicts 'hang' over the markets, we suspect they will likely provide a modest element of support, and prevent crude from retesting its December lows," Meir wrote in a research brief.
Elsewhere in the commodity markets, gold futures fell more than 3% to the lowest level in nearly one month, pacing sharp losses in crude oil and other commodities, with a stronger U.S. dollar also reducing the metal's investment appeal.
