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London: Oil dropped from a record high on Monday as a part of wider commodity sell-off sparked by growing concern over the health of the world's largest economy.
US crude was trading at $106.87 by 1359 GMT, down $3.34 from the previous close. Earlier yesterday, it hit a new record of $111.80 and then fell to a session low of $105.11.
Crude oil prices had risen by about 16 per cent so far this year, driven in part by the weakness of the dollar, which makes raw materials priced in dollars relatively cheap, and as fund-managers seek a hedge against inflation.
But analysts say the dollar-trading play could be running out of steam and they are also concerned US economic weakness could suck in other economies and undermine demand for commodities.
The dollar slid to all-time lows across the board after JPMorgan Chase agreed to buy rival investment bank Bear Stearns for a rock-bottom price.
At the same time, the US Federal Reserve expanded lending to securities firms for the first time since the Great Depression in an attempt to shore up confidence.
Some oil executives have also said fundamentals of supply and demand do not explain oil price strength.
"From the physical point of view there is no high alarm," Royal Dutch Shell's Chief Executive Jeroen van der Veer said at a news conference. "It's difficult to understand why the oil price is where it is."
But he said prices were expected to stay volatile.
"We think that is quite likely because there is so much uncertainty around it, whilst the physical flow is basically the same as when the oil price was a lot lower."
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