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Oil fell below $96 a barrel on Monday to the lowest level since February 2011, as a pro-bailout vote in Greece failed to ease fears about the euro zone, sending crude lower with the euro, stocks and other commodity markets.
Pro-bailout parties in Greece will form a government after a narrow election victory over the left that eased fears of a sudden exit from the euro.
But the possibility that other larger economies such as Italy and Spain may also need to be rescued remains a threat to the euro zone and is driving investors to reduce their exposure to risky assets.
"The economic outlook is upsetting people more than security issues around Iran, and they realise that nothing really has come out of Greece, except that the crunch may have been delayed for a while," said Roy Jordan, an oil analyst at Facts Global Energy.
Leaders at a Group of 20 will be under pressure to produce a lasting solution to a debt crisis at a two-day meeting in Mexico.
Brent crude were down $1.59 cents at $96.02 a barrel at 1409 GMT, recovering from a low of $95.38 a barrel, the lowest price since February 2011.
U.S. oil futures were down $1.39 cents at $82.64 a barrel around the same time.
Some analysts said there was also a technical explanation for the slide in oil prices, which gathered pace during the course of the session.
"We are currently on the 2012 low at this moment. It would be interesting to see whether it breaks (closes below $95.63). A break would open towards $91,85 and $89,58," said Thorbjoern Jensen, oil analyst at A/S Global Risk Management.
Falling oil prices are also starting to hit U.S. domestic oil and gas production, according to Commerzbank commodity analysts.
"The oil rig count fell last week for the first time again after a record level had been reached in the week before. At the current prices of $75 per barrel for Bakken oil, a number of shale oil projects are likely to become unprofitable," the analysts wrote in a note.
IRAN NUCLEAR TALKS
Ahead of another round of talks between Iran and the West in Moscow on Monday, analysts said markets would cope with any loss of Iranian oil because crude markets were oversupplied.
"Everyone is feeling a bit deflated and it is dawning on people that there is an awful lot of oil around and that this cut-back is needed," Jordan at Facts Global Energy said.
The meeting was unlikely to produce a swift resolution to a dispute over Iran's nuclear programme, nor prevent an embargo on Iranian oil from taking effect on July 1, analysts said.
"Iran's two central goals, recognition of its right to enrich uranium and significant sanctions relief, will probably not be met. And on balance a deal will probably not occur in Moscow," Eurasia Group analysts wrote in a note.
Iran also wants relief from intensifying economic sanctions, and faces new U.S. and European Union sanctions in the next two weeks.
In less than two weeks, Iran's biggest oil buyers will lose access to the London-based insurance market that protects 95 percent of the world's tanker shipments against oil spills or catastrophic collisions.
This critical side effect of EU sanctions to punish Iran for its nuclear program has so far provided little support for slumping crude oil markets.
That's because the market is oversupplied as economic growth slows and additional exports by Saudi Arabia outweigh the loss of Iran's oil, analysts and traders say.
Brent futures have dropped by more than 20 percent since April, to trade below $100 a barrel for the first time since early 2011.
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