FEARS that the spread of swine flu could further undermine demand for crude by cutting air travel pushed prices down near $49 a barrel yesterday.
Expectations of a further build in U.S. oil stocks also depressed prices.
Benchmark crude for June delivery was down $1 to $49.14 a barrel by afternoon in Europe, in electronic trading on the New York Mercantile Exchange. The contract Monday fell $1.41 to settle at $50.14.
Swine flu has killed up to 149 people in Mexico and cases have been reported in the U.S. and Canada.
Authorities around the world have stepped up precautions, with many international airports checking passengers coming from Mexico and the U.S. for signs of flu.
"If it restricts travel and keeps people at home, it would have implications for all asset classes," said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore.
"It has potential to be huge, but it could also be quickly contained."
Vienna’s JBC Energy also warned that any global outbreak could further depress the crude market, noting that prices were currently driven in part by "the fear-factor … and not physical oil fundamentals."
"The swine flu could potentially decimate demand for passenger air travel, something which happened in 2003 with the outbreak of SARS bird flu in Asia," said a JBC newsletter.
Oil has traded close to $50 a barrel for the past month as investors struggle to forecast when the global economy may recover from its worst slowdown in decades.
Traders will be watching the weekly petroleum inventory data from the Energy Information Agency on Wednesday. Analysts expect a build of 1.8 million barrels in crude stocks, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. Crude stocks already are near 19-year highs.
"Crude has been really range-bound for a while," Moltke-Leth said. "Inventories are extremely high, and we’re probably not going to see smaller supplies any time soon."
Some analysts expect prices to fall over the next 12 months as an economic recovery fueled by massive government stimulus packages could fail to gain traction. Prices have risen from below $35 in February on optimism the worst of the downturn may be over.
"The commodity revival over the last three months is fundamentally a dead cat bounce," said Charles Dumas, director at consultancy Lombard Street Research in London. "You still have tons of supply and oversupply in relation to demand."
"I think the lows we saw in the $30s will be tested again."
In other Nymex trading, gasoline for May delivery fell by more than three cents to $1.37 a gallon and heating oil lost more than a penny to fetch $1.30 a gallon. Natural gas for May delivery slipped by more than five cents, selling for $3.20 per 1,000 cubic feet.
In London, Brent prices fell 95 cents to $49.37 a barrel on the ICE Futures exchange.