NEW YORK (AP) — Oil dropped more than 2 percent Monday as the dollar strengthened and an energy research group said it expected growth in Chinese demand for oil to slow later this year.
At the pump, gas prices continued to fall as oil retreated.
Benchmark crude for July delivery lost $2.44, or 2.4 percent, at $97.66 per barrel on the New York Mercantile Exchange in afternoon trading. In London, Brent crude gave up $2.62 or 2.3 percent, at $109.77 per barrel on the ICE Futures exchange.
Crude dropped as the dollar rose against other currencies. Oil is priced in dollars, and it tends to fall as the dollar rises and makes crude more expensive for investors holding foreign money. The U.S. Dollar Index, which measures the dollar against other major currencies, rose 0.8 percent amid concerns about Europe's debt crisis.
Last week, credit ratings agency Fitch downgraded Greece again and Standard & Poor's lowered Italy's ratings outlook. The euro tanked on a combination credit rating downgrades, a heavy electoral defeat for Spain's governing party and disagreements among top European officials on how to deal with the financial crisis.
Meanwhile Platts, the energy information arm of McGraw-Hill Cos., reported Monday that the rapid rise in Chinese oil consumption slowed down in April. The Chinese consumed 9.37 million barrels per day in April, up 8.3 percent from the same period last year, but down from the 10 percent average growth in the first quarter of this year.
A decelerating economy and high oil prices were "denting end-user demand" in the country, Platts said. China is the second biggest petroleum consumer in the world behind the U.S.
Other government and industry data show that gasoline demand in the U.S. has been on the decline for two months as pump prices rose above $4 per gallon in many states. The Platts report suggests that international demand also has been hurt by higher prices.
"You have to ask how unrealistic it's been that prices have been pushed up to this level," analyst and trader Stephen Schork said. "There could be further weakness in this market."
Gasoline pump prices dropped nearly a penny to a new national average of $3.843 per gallon with a few days left before the Memorial Day weekend. A gallon of regular is 1.3 cents lower than it was a month ago and $1.04 higher than the same time last year. Analysts say prices could tumble to $3.50 per gallon by June.
In other Nymex trading, heating oil lost 6 cents to $2.8582 per gallon and gasoline futures were virtually unchanged at $2.9387 per gallon. Natural gas added 8 cents at $4.373 per 1,000 cubic feet.
Chris Kahn can be reached at http://twitter.com/ChrisKahnAP
Associated Press Writer Pan Pylas contributed to this story from London.