Oil fell below $118 a barrel on Monday, pressured by concern over the euro zone debt crisis, although supply worries due to tightening Western sanctions on Iran checked the slide.
The outlook for Europe's economy worsened in April, raising the likelihood that oil consumption will slow. Fresh data for Germany, France and the euro zone showed a much faster rate of economic contraction than had been expected.
The wobbly financial state of some big euro zone economies has unsettled markets, despite signs at the start of the year that Europe's long-running debt crisis was easing.
Brent crude dropped $1.23 to $117.53 a barrel by 1320 GMT, while U.S. crude tumbled $1.66 to $102.21.
Analysts say world oil markets may be poised for a downward correction.
"Supply outages and geopolitical concerns have supported crude, but barring a supply shock, upside is limited from here," said a Morgan Stanley research note. "Risks are skewed to the downside."
The United States and Europe have imposed sanctions on Iran aimed at halting its nuclear programme by choking off its oil export revenues. Western governments fear Iran aims to develop nuclear weapons, while Tehran says its programme is for solely peaceful purposes.
Iranian oil officials say crude exports have slipped to 2.1 million barrels per day (bpd), compared with an average 2.3 million bpd in the last Iranian year that ended on March 19.
At a Group of 20 finance ministers' meeting in the United States last week, officials agreed to watch oil prices closely and carry out "additional actions" as needed.
Tightening sanctions on Iran helped send Brent above $128 a barrel in March, the highest since 2008
China, one of Iran's top crude oil buyers, made sharp cuts in imports during the first quarter as companies haggled with Iran's state-run oil company over prices and contract terms.
March crude imports from Iran fell 54.1 percent from a year earlier to 253,302 barrels per day (bpd), customs data showed on Monday.
"On the supply side, Iran continues to be a risk which we can't ignore at all," said Ric Spooner, chief market analyst at Australia-based CMC Markets.
"It seems quite unlikely that we will be seeing any swift resolution to the standoff between the West and Tehran over their nuclear programme."