Oil futures fell more than 3% to finish at their lowest level in seven months as Spain's intensifying banking crisis prompted fresh worries about the future of the euro zone.
Light, sweet crude for July delivery settled $2.94, or 3.2%, lower at $87.82 a barrel on the New York Mercantile Exchange, the lowest settlement since Oct. 21.
Brent crude on the ICE futures exchange recently fell $3.41, or 3.2%, to $103.27 a barrel, on track for its lowest settle since Oct. 5.
Spain's borrowing costs continued to surge amid concerns the country might not have the financial strength to survive the meltdown in its property market. Other weak euro-zone members, such as Italy, have also seen borrowing costs rise in recent weeks amid fears that Greece or other members might have to leave the euro zone.
"It's all about Europe, this down move," said Peter Donovan, vice president at Vantage Trading on the Nymex floor. "This Spanish thing looks like a mess, and certainly Greece too.... Guys are just really nervous about Europe."
Those fears sent investors dumping the common currency in favor of the dollar, which hit a 22-month high against the euro. A stronger dollar tends to weigh on oil prices by making the dollar-denominated commodity more expensive for holders of other currencies.
The euro was recently down 1% at $1.2382
The events in Spain underscore the broader crisis facing the euro zone as its weakest members continue to face fiscal and political turmoil that threaten to upend the currency union. Down the road, oil market participants worry that further upheaval in Europe will weaken economic growth and slow demand for crude-oil and fuels.
Other commodities took a hit Wednesday, as did equities markets.
In the U.S., oil demand remains increasingly weak amid tepid economic growth in the world's biggest consumer of crude. The Energy Information Administration said Wednesday that oil demand in the first quarter fell to its lowest level for that period in 15 years.
Meanwhile, oil supplies remain ample, as Saudi Arabia keeps output elevated and production in Libya continues to rise.
"There are a bearish fundamentals with oil, with OPEC production coming in consistently higher in April and May than anyone thought," said Andy Lebow, senior vice president of energy futures at Jefferies Bache.
Meanwhile, signs that the stand-off between Iran and the West has eased has also weighed on prices, as concerns over an imminent conflict with Tehran diminish. Still, the European Union has said it is set to push ahead with an oil embargo beginning July 1.
Front-month June reformulated gasoline blendstock, or RBOB, settled 4.83 cents, or 1.7%, lower at $2.8582 a gallon. June heating oil settled 6.9 cents, or 2.5%, lower at $2.7398 a gallon.