Oil plummets amid renewed uncertainty

NEW YORK (CNNMoney.com) -- Oil fell on Monday, on renewed uncertainty over the debt crisis and the dollar strengthened against major currencies.

What prices are doing: Crude prices plummeted $1.44 to settle at $79.80 a barrel on Monday.

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What's driving the market: Prices took a nosedive, as traders kept a wary eye on global sovereign debt issues, after a report showed renewed worries over some countries' ability to sustain a recovery.

Early on Monday, Moody's quarterly Aaa Sovereign Monitor report showed that while the triple-A ratings of the U.S., U.K. and other established countries are not yet threatened, there are concerns over how some governments, including Spain and Greece, will deal with the economic recovery.

"Sovereign ratings are going to continue to be a significant concern for investors," said Gianna Bern, president of Brookshire Advisory and Research, Inc., "Even AAA-rated countries need to get their financial balance sheets in order."

Also pushing prices down was a strengthening dollar, which gained against the euro, yen and pound, and a general retrenchment in the equity markets.

What analysts are saying: "There's been a movement away from risk markets like oil and equities," said Tom Pawlicki of MF Global. According to Pawlicki, falling oil prices tend to correlate with weakness in equities.

Looking ahead, traders are keeping an eye toward the Federal Reserve's meeting on Tuesday and OPEC's semi-annual meeting on Wednesday in Vienna.

While analysts expect the OPEC meeting to result in unchanged production quotas, many are paying close attention to changes in language about compliance with the quotas.

"We look at their decision not to move the quota with a big grain of salt," said Bern. "They will probably make some effort to reign in compliance."

Countries within the cartel have been known, historically, to break the quotas and produce more than mandated, as oil prices rise.

Over the past two weeks, oil prices have flirted with a price of $83 a barrel, but analysts say that oil prices retreated as reality set in that demand has not warranted such a hike.

According to Bern, the $70 to $80 a barrel range seems to be "a happy medium" between reasonable profits for the OPEC nations and inflationary pressures across the globe. "[OPEC] seems to be very aware of the global implications of a crude oil price that is too high," she said.

Still, analysts expect prices to rally over the medium term, as global demand continues to rise ahead of the summer driving months.