Oil ends at two week low

Futures fall sharply as signs of weak energy demand overshadow tense political situations around the world.

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By Ben Rooney, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Oil prices fell sharply Monday as investors looked past tense geopolitical situations to focus on the weak outlook for the global economy.

Light, sweet crude for July delivery fell $2.62, or 3.8%, to settle at $66.93 a barrel in New York. It was the lowest closing price since June 3, when crude settled at $66.12 a barrel.

Oil for August delivery, which replaces July as the active contract Monday, fell $2.52 to $67.50 a barrel.

The retreat comes despite ongoing political unrest in Iran, militant attacks on oil installations in Nigeria and escalating tensions with North Korea.

Geopolitics: Demonstrations continued in Iran Monday after at least 19 people were killed Saturday during street protests over the results of the country's June 12 presidential election.

Such unrest in the world's No. 4 oil producer would normally raise concerns about possible supply disruptions and drive oil prices higher. However, the market is looking past the volatile geopolitical backdrop because the world's supplies of oil are already brimming, said Phil Flynn, an energy analyst at Alaron Trading in Chicago.

"We have a world with a lot of spare production capacity," Flynn said. "Geopolitical threats don't rattle the market as much as they did last year."

In Nigeria, Africa's largest oil exporter, militants attacked an oil and gas pipeline operated by Italian oil company Agip on Friday, Reuters reported. The attack widened a campaign which has so far targeted Chevron (CVX, Fortune 500) and Shell, halting a further 33,000 barrels per day of oil production.

Meanwhile, North Korea is reportedly preparing to test-fire another missile after conducting a nuclear test and launching missiles into the sea last month.

Economy: Crude prices had nearly doubled from the lows of late last year as investors bet the world's demand for energy was poised to rebound as the global economy showed signs of stabilization.

However, recent U.S. government data have shown that demand for oil and gasoline remains weak, said Andrew Lebow, an energy trader at MF Global in New York.

"The rally was based on improving economic conditions in the second half of the year," he said. "But current demand numbers were disappointing."

Highlighting the dour outlook for the global economy: The World Bank said Monday that global trade will plummet by nearly 10% this year, and output will fall by 2.9%.

The report cast a pall over Wall Street, with stock prices falling sharply in afternoon trading. Many oil traders view the stock market as a leading economic indicator. As a result, oil prices often rise and fall in tandem with the major stock indexes.

At the same time, the U.S. dollar regained ground against rival currencies as investors looked to preserve capital in cash. A stronger greenback often pushes oil prices lower since crude is priced in dollars.

"We're entering a multi-day correction with some geopolitical worry in the background," Lebow said.

Gasoline: Meanwhile, retail gas prices eased Monday, halting a 54 day surge.

Nationwide, the average price for a gallon of regular unleaded gasoline edged down to $2.69, shaving just three-tenths of a cent from the previous day's average of $2.693, according to motorist group AAA. To top of page

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