Oil drops below $70 as European shares take a hit

By NATALIYA VASILYEVA AP Business Writer

LONDON (AP) - Oil prices dropped below $70 a barrel Monday after an short-lived morning rally in Asia was stopped by declining European stock markets.

Benchmark crude for July delivery was down 27 cents to $69.77 a barrel by early afternoon London time in electronic trading on the New York Mercantile Exchange. The contract lost 76 cents to settle at $70.04 on Friday.

Declining stocks in Europe kept oil from extending early morning gains in Asia when crude reached $71. The FTSE 100 was down 0.5 percent at noon London time, while Germany's DAX fell 1.3 percent and the French CAC-40 was off 0.7 percent.

Stocks and crude often move in the same direction since share prices are often an indication of future economic activity and demand for oil.

"U.S. fundamentals remain weak and oil demand growth is mixed," wrote analysts at KBC Energy Economics, citing weak U.S. jobs data from last week.

Crude has fallen about 20 percent from $87.15 earlier this month as investor concern about Europe's debt crisis hammered global stocks and the euro. But prices are up from as low as $64.24 a barrel last week, as the euro steadied.

Oil plunged to $32 a barrel in December 2008 from $147 five months earlier as a financial crisis in the U.S. triggered a global recession.

The Brent crude July contact in London was down 81 cents to $71.1 on the ICE futures exchange.

"Brent seems reluctantly to be responding to the weak fundamentals underlying the market and fears that the Greak debacle may spread," KBC Energy Economics said in a Monday note to investors.

In other Nymex trading in June contracts, heating oil dropped 0.01 cent to $1.886 gallon, and gasoline dropped 0.01 cent to $1.952 a gallon. Natural gas was 0.02 cent at $4.01 per 1,000 cubic feet.