U.S. oil prices fell below $70 a barrel to their lowest in over three months on Monday but then rebounded as short-sellers covered positions after a fall of almost 20 percent in just two weeks.
U.S. oil futures hit a 19-month high above $87 on May 3 but have fallen steadily since then and reached a low of $69.82 a barrel on Monday, their weakest since Feb. 5, on concerns over Europe's debts, the weak euro and swollen U.S. oil inventories.
The euro sank to four-year lows as Europe's debt crisis led investors to pull more money from stocks in favour of safer havens such as gold and Asian bonds. Base metals slid to three-month lows as investors shunned riskier assets and on doubts over the prospects for growth.
"It is not surprising that prices have recovered after such sharp falls," said Eugen Weinberg, analyst at Commerzbank in Frankfurt. "But it is probably a fairly short-term rally … short sales are being covered after the sell-off."
By 1100 GMT, U.S. crude for June delivery was up 10 cents at $71.71. At its intra-day low of $69.82, oil prices were down almost exactly 20 percent from their peak two weeks ago.
July Brent crude rose 5 cents to $77.98 a barrel.
So far in May, the U.S. crude contract has lost almost 17 percent, its biggest monthly drop since December 2008. The contract is expected to face volatility ahead of Monday's June crude options expiry and the May 20 June crude contract expiry.
Stockpiles of crude at Cushing, Oklahoma, the delivery hub for the U.S. contract's West Texas Intermediate benchmark crude, have risen in the last eight weeks to a record high 37 million barrels, pushing front-month U.S. crude down relative to later futures contracts and the other global crude benchmark, Brent.
"VULNERABLE"
Brokers MF Global expressed concern for the outlook for oil and some other commodities and cited an analysis of fund flows suggesting that while precious metals could outperform, "crude oil, copper, and aluminium could be relatively vulnerable".
Members of the Organization of the Petroleum Exporting Countries have said they think oil prices should be between $70 and $80, a range they say is fair for both consumers and producers, and recent price falls are worrying OPEC countries.
Kuwaiti oil minister Sheikh Ahmad al-Abdullah al-Sabah said last week OPEC was likely to meet if crude prices fell sharply.
"Sixty-five dollars would ring a bell … and a meeting," he told reporters before an Arab Energy Conference.
But some traders believe such comments may be dangerous. MF Global said OPEC may just be giving the oil market a target:
"OPEC seems to be nonplussed by the recent decline, saying that it would not consider meeting until prices get to $65," MF Global said in a note to clients. "This effectively sets up a downside target that the markets will conceivably gun for, and one that is not outside the realm of possibility."
Japan's Nikkei shed 2.2 percent on Monday, falling with other Asian markets, but European stocks rose.
The dollar rose 0.6 percent against a basket of currencies. Gold priced in sterling hit an all-time high at 867 pounds on Monday after the British currency struck a fresh one-year low against the dollar.
A strong U.S. currency makes dollar-denominated commodities, such as oil, more costly for holders of other currencies and tends to damp prices.
