Oil extended losses on Tuesday to four-week lows near $71 after a raft of negative economic indicators over the past week undermined confidence about growth in energy use.
Global services growth slowed in June, data showed on Monday, a further sign just days after weak manufacturing data that emerging and developed economies are set to cool off through the second half of the year.
Concern about the health of European banks and a potential double-dip recession also fanned risk aversion, sending the dollar higher on Tuesday, making commodities denominated in the US currency more expensive for Asian buyers.
US crude for August delivery fell as much as $1.05 to $71.09 a barrel, its weakest since June 8 and a fall of 1.5 per cent from Friday. It was down 58 cents at $71.56 by 0436 GMT.
The extended session combined the trades of Monday and Tuesday on the New York Mercantile Exchange (NYMEX) because of the US Independence Day holiday. A single settlement price will be issued for July 6.
"The market mood is very bad as people try to look for bearish data all over the world and liquidity is low due to the US holiday," said Keichi Sano, general manager of research at SCM Securities in Tokyo.
"The economic recovery is even slower than most people expected. Everything is going down and that reflects the weaker Chinese economy."
ICE Brent crude for August slid 25 cents to $71.22 a barrel, posting a smaller decline than US crude after Monday's settlement price already accounted for part of Tuesday's drop in NYMEX crude.
S&P 500 futures fell more than 1 per cent on Tuesday, before paring losses, while Japan's benchmark Nikkei fell to a seven-month low.
China's services sector growth slowed to its weakest in 15 months in June, with a similar slowdown across Europe, where governments are taking the hatchet to budgets and where consumer spending is already lacklustre.
Traders were looking to Tuesday's release of US non-manufacturing PMI data for June for further indications about the direction of the economy.
Top oil exporter Saudi Arabia cut the August official selling price (OSP) for its Arab Heavy crude oil grade to Asia, in line with expectations, although it unexpectedly raised the price for Arab Light crude.
A weather system located between Mexico's Yucatan peninsula and western Cuba had a 30 per cent chance of developing over the next two days into a tropical cyclone, a category that includes tropical storms and hurricanes, the US National Hurricane Center said late on Monday.
The system's location and expected course are similar to those Hurricane Alex followed in its formation late in June, before moving into the Gulf of Mexico, forcing Mexican oil terminals to shut and US producers to curb output.
Mid-week US inventory reports are typically delayed by one day in weeks when Monday is a holiday.
This means that supply data from the American Petroleum Institute (API) is published on Wednesday and government statistics from the Energy Information Administration (EIA) are published on Thursday.