Oil fell nearly $2 to stand near $87 a barrel today as financial markets tumbled on growing concerns over the health of the US economy.
Earlier today, US crude was down $1.73 at $86.84 a barrel, off lows of $86.54, retreating further from the $90.07 all-time high it hit on Friday. London Brent crude was $1.83 lower at $81.96.
US oil has rallied more than 10 per cent since October 8th, climbing towards the inflation-adjusted high of $101.70 hit in April 1980, a year after the Iranian revolution.
A weak dollar and surging energy costs have increased worries over the health of the US economy, already battered by the crisis in the subprime mortgage sector.
The dollar bounced back from a record low against the euro, as European and Asian stocks fell sharply after a flurry of weak US corporate results sparked concerns the world's top economy was heading for a recession.
Despite oil's slide since Friday's all-time high, analysts said mounting tensions between Turkey and Kurdish rebels in northern Iraq would continue to offer underlying support and keep prices close to record territory.
News Iran's chief nuclear negotiator had resigned also raised concerns of more instability in the Middle East. Analysts say the man named to replace Ali Larijani could present the West with a harder line in a long-running dispute over Tehran's atomic ambitions.