Brent crude oil slipped below $108 a barrel on Monday as investors worried a European deal on closer fiscal union would not solve its debt crisis and might deepen a regional slowdown.
The euro, stock markets and gold all tumbled, while the dollar and German bund futures, seen as a safe haven from the highly indebted euro zone governments, rose.
All EU countries except Britain agreed last week on stricter budget rules, moves towards fiscal union and to provide up to 200 billion euros in bilateral loans to the International Monetary Fund to help tackle the crisis.
But it could take three months to negotiate and may require referendums in countries such as Ireland.
Investors worry the long-term steps may not be sufficient to avert a short-term funding crisis for one or more of the euro zone's indebted economies. Tight budget control is also likely to imply lower economic growth in the medium term.
"The austerity measures will have a profoundly negative impact on economic growth and will make 2012 a very challenging year in economic terms," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.
Brent futures for January fell $1.62 to a low of $107.00 before recovering to around $107.35 by 1442 GMT. U.S. crude futures fell $1.66 to a low of $97.75 before inching up to around $97.90.
Rating agency Standard & Poor's (S&P) put more pressure on the euro zone on Monday with its chief economist saying time was running out for the bloc to resolve its debt problems and it might need another shock to get it moving.
Jean-Michel Six, chief economist of the agency that shocked financial markets last week by putting 15 euro zone countries on a watch for a potential downgrade, said last week's EU summit agreement was a significant step forward, but not enough.
"If we get an S&P downgrade, the markets will take another leg down," Weinberg said. "It has not been discounted yet."
Balancing the euro zone gloom for the oil market were figures from China showing a surge in crude imports.
The country's crude oil imports rose 8.5 percent over a year earlier to 5.52 million bpd in November, the second-highest on record on a daily basis. The daily rate was nearly 13 percent more than in October.
China's implied oil demand, a combination of crude runs and net oil product imports, rose 1.7 percent from a year earlier to about 9.5 million barrels per day (bpd) last month, according to Reuters calculations based on preliminary government data.
Ministers of the Organization of the Petroleum Exporting Countries (OPEC) were due to start arriving in Vienna on Monday ahead of a Dec. 14 meeting to discuss output.
OPEC members have been at odds over supply policy since June but look set this week to agree a new production target that will endorse current cartel output around 30 million barrels per day (bpd), delegates say.
OPEC's leading price hawk, Iran, said on Sunday the oil market was balanced and called on some OPEC producers to cut back as Libyan output resumes.
This week, investors are expected to watch for a series of U.S. data numbers including retail sales, consumer prices, manufacturing and jobless claims, aside from headlines out of Europe, to gauge direction. (Additional reporting by Manash Goswami in Singapore; Editing by Alison Birrane)