Although it affirmed the United States’ credit rating, Standard & Poor’s said there was a risk policymakers may not reach agreement on how to address the country’s long-term fiscal pressures.
“The US debt situation got a reality check this morning from the move by S&P,” said John Kilduff, partner at Again Capital in New York. “Only precious metals will be seen as attractive in the aftermath of the outlook downgrade.”
OPEC ministers voiced their concerns at a meeting in Kuwait, where Nobuo Tanaka, executive director of the International Energy Agency, reiterated his comment that if oil prices remained around current levels, they could trigger a recession similar to the one in 2008.
Oil earlier felt pressure after Saudi Arabia on Sunday confirmed it had cut output by more than 800,000 barrels per day in March because of weak demand for its crude.
Brent crude for June fell $1.81 to $121.64 a barrel as of 1:58 p.m. EDT (1758 GMT), off its session low of $121.
US crude for May fell $2.42 to $107.24, having slipped as low as $106.54. The US May crude contract expires on Tuesday.
US equities tumbled as the S&P action added to concerns about the world’s top economy. Equities and oil also felt pressure from another Chinese bank reserve hike over the weekend, the latest move to control inflation that could curb demand growth.
Most commodities fell, hit by the S&P action and concerns over Chinese demand. The 19-commodity Reuters-Jefferies CRB index lost 1.2 percent, its most in a week. One exception was gold — seen as a store of value — which shot to a record near $1,500 an ounce.
S&P said there is a 1-in-3 chance it could cut its long-term credit rating on the United States within two years.
“This new warning, this time from S&P, highlights the need for the US to take better control of its fiscal destiny if it is to avoid higher borrowing costs and maintain its central role at the core of the global economy,” Mohamed El-Erian, chief executive at Pimco, which oversees $1.2 trillion in assets, said.
Oil investors already had been worried about China’s economic growth after another hike to Chinese banks’ required reserves on Sunday. The action was aimed at fighting excessive liquidity and high inflation.
Crude fell early last week after Goldman Sachs and other key forecasters warned high oil prices were eroding demand. It rebounded late in the week on encouraging US economic data and a steep fall in US gasoline inventories.
The euro posted its biggest one-day decline since November against the dollar as concerns increased that Greece will be forced to restructure its debt and amid growing anti-aid sentiment in Europe.
The dollar index, measuring the greenback against a basket of currencies, strengthened.
A stronger dollar can pressure oil prices by making dollar-denominated crude more expensive for consumers using other currencies and by drawing investment to foreign exchange markets for better returns.
Investors remain worried about lingering threats to oilsupply that helped spark prices to recent, 32-month peaks.
Forces loyal to Muammar Qaddafi bombarded Misrata, Libya’s third-largest city, and a chartered ship evacuated nearly 1,000 foreign workers and wounded Libyans.
Clashes broke out in Yemen, wounding at least 15 people, and thousands demanded the overthrow of Syrian President Bashar Al-Assad in escalating unrest.
Oil investors also eyed Nigeria, where rioting took place in northern cities after a contentious election, according to the Nigerian Red Cross.
