By CHRIS KAHN, Associated Press
NEW YORK (AP) — Last week's spike in the price of oil may have been a little overdone.
Benchmark U.S. crude dropped 1.4 percent in New York, paring back some of the 9.4 percent increase on Friday. Oil fell by $1.21 to end the day at $83.75 per barrel.
Brent crude also dropped by 46 cents, or less than a percent, to finish at $97.34 per barrel in London.
Friday's big gains followed a surprisingly bold plan by European leaders to manage the continent's debt crisis. Monday brought a reminder that the global economy is far from firing on all cylinders.
Reports showed weakening industrial production in China and a decline in U.S. manufacturing. That signals more trouble ahead for the global economy, which could suppress demand for oil.
In China, which is expected to drive world oil demand growth, manufacturing activity in June grew at the slowest pace in seven months.
In the U.S., the Institute for Supply Management said manufacturing activity declined in June for the first time in nearly three years. The slowdown comes as Europe's financial crisis weakens demand for U.S.-made goods.
"The market is still kind of jittery after last week," said Gene McGillian, a broker and oil analyst at Tradition Energy. "People are still confused as to which direction the market is taking."
Before Friday, oil had fallen more than 25 percent in a nearly two-month period. Much of that was due to concern about worsening economic conditions in Europe. But slower growth in the U.S. and China played a part.
Oil prices soared on Friday after the EU unveiled a plan to rescue ailing banks, ease borrowing costs for Italy and Spain and stop forcing painful budget cuts on every country in need of emergency financial aid. After three years of underwhelming responses, the plan was hailed as a breakthrough.
Still, experts noted Europe's economy remains weak, with unemployment hitting a new high of 11.1 percent in May. Investors will be closely watching economic indicators in coming weeks as well as how EU finance ministers hash out the details of the plan.
"We've been burned before," energy trader and consultant The Schork Group said in a report. "Wasn't Greece supposed to be stabilized in 2009, 2010, 2011?"
Oil prices probably would have dropped even further if not for renewed concerns about Iran. Iran has resisted pressure by Western nations to force its nuclear facilities open to inspection. In response to a European embargo of imports from Iran, Iranian lawmakers are again calling for the country to block the Strait of Hormuz, a critical passageway for international oil shipments.
Such a move could slow oil shipments out of the Persian Gulf.
At the pump, U.S. gasoline prices dropped nearly 3 cents over the weekend to a national average of $3.326 per gallon, the lowest in almost six months, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded has declined by an average of 61 cents per gallon since April 6.
In other futures trading, heating oil lost 3.4 cents to finish at $2.6759 per gallon while wholesale gasoline fell by less than a penny to end at $2.6239 per gallon. Natural gas was unchanged, ending at $2.824 per 1,000 cubic feet.
Associated Press Writer Pablo Gorondi contributed to this report.
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