NEW YORK (Dow Jones)--Oil futures prices fell sharply in early trading Monday, following equities and the euro lower as European sovereign debt worries continued to weigh on the market.
Light, sweet crude for October delivery fell $2.25, or 2.6%, to $85.71 a barrel on the New York Mercantile Exchange. The October Nymex contract expires Tuesday. Brent crude on ICE Futures Europe exchange fell $1.52, or 1.4%, to $110.70 a barrel.
Several analysts said the failure of euro-zone leaders to emerge from weekend meetings with a strong plan to contain sovereign debt worries--and concern about a Greek default in particular--was driving the market down.
The lack of progress is forcing "a renewed deleveraging across the equity and oil markets," Ritterbusch and Associates said in a research note.
"Potential for a negative economic event conjures up images of curtailed demand," the note added.
Oil's drop continued the decline set last week, when Nymex futures dropped 1.6% Friday. John Kilduff, founding partner of Again Capital, said domestic concerns about administration and Fed efforts to boost the U.S. economy also seemed to be having an effect.
"The diminished economic outlook is causing selling of oil and selling of equities and we're going along for the ride," he said. "The dollar play against oil is at work too, but also the diminished outlook for the economy is hurting demand prospects for oil."
The Dow Jones Industrial Average was down 224.10 points, or 1.95%, to 11284.99 in early trading. The euro was trading at $1.3656, down from $1.3802 Friday. A strengthening dollar against the euro can drive prices for dollar-denominated crude contracts lower, because it makes the commodity costlier for holders of other currencies.
Peter Donovan, a vice president and trader at Vantage Trading, put the blame for declining markets squarely on the euro-zone's failure to put forward a concrete plan.
"The markets are reacting to the fact that these euro leaders really failed to tackle this debt crisis over the weekend," he said. "Traders are looking for a plan, and that plan doesn't appear to be forthcoming. So it's knocked down the equity markets, it's knocked down the euro, and oil's going with that."
Front-month October reformulated gasoline blendstock, or RBOB, recently dropped 7.61 cents, or 2.73%, to $2.7080 a gallon. October heating oil was down 6.65 cents, or 2.21%, to $2.9424 a gallon.