An early 2 percent gain in the price of oil evaporated Monday on the realization that a solution to Europe's debt crisis remains a long way off.
A multi-billion dollar bailout loan for Spain's banks generated initial enthusiasm in the global stock, bond and energy markets. But by noon in New York, the good feeling had given way to skepticism that the financial lifeline given to Europe's fourth-largest economy would do much good long-term.
Benchmark oil fell 74 cents to $83.36 per barrel in New York. Brent crude, which is used to price international varieties of oil, dropped 81 cents to $98.66 per barrel in London. The broad S&P 500 stock index fell about 0.6 percent.
Leaders of European countries have agreed to lend Spain up to $125 billion to help its troubled banking system. Spain is the fourth European country after Greece, Portugal and Ireland to request financial help since the debt crisis began. If Spain's banks fail, traders worry that Europe's broader financial problems will hurt demand for oil while the U.S. and China are coping with slower economic growth.
It's not yet clear whether the region's ongoing efforts to put the financial crisis to rest will result in an economic turnaround. "It just doesn't seem like that's very close," said Michael Lynch, president of Strategic Energy & Economic Research.
Meanwhile, oil supplies continue to build despite ongoing weak demand around the world.
U.S. oil production topped 6 million barrels a day in the first quarter of 2012, which was a 14-year high, according to the Energy Information Administration. Most of the increase was the result of more production in North Dakota, Texas and the Gulf of Mexico.
Oil's decline was tempered by date showing China imported nearly 6 million barrels of crude a day in May. That was about 10 percent more than April and 18 percent more than a year earlier. China is a huge importer of oil and other commodities.
Meanwhile, motorists are continuing to see a steady decline in pump prices. The national average for gasoline fell less than a penny overnight to $3.54 per gallon, according to AAA, Wright Express and the Oil Price Information Service. That's 19 cents less than a year ago. Gas has dropped 50 cents per gallon in a little more than two months.
In other trading, heating oil fell 2 cents to $2.66 per gallon, gasoline dropped 1 cent to $2.68 per gallon and natural gas was down 6 cents to $2.24 per 1,000 cubic feet.