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Oil prices slumped more than five percent Monday on the rising prospects of a return of Iranian oil to the market and data showing China's economic recovery stuttering under Covid-19 restrictions.
Stock markets were broadly steady and the dollar traded mixed as investors welcomed signs of cooling US inflation, which nevertheless remains at the highest level in decades.
"The dark clouds of recession appear to be appearing when it comes to the global economy, with the latest China data reinforcing those fears," said market analyst Michael Hewson at CMC Markets UK.
China's central bank slashed key interest rates in a surprise move Monday as a raft of data showed weakness in the world's second-largest economy.
The figures showed China's industrial production and retail sales growth for July came in lower than expected.
Industrial production was up 3.8 percent year-on-year, but down from 3.9 percent in June and well below analysts' forecasts.
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"The risk of stagflation in the world economy is rising, and the foundation for domestic economic recovery is not yet solid," China's National Bureau of Statistics warned.
Stagflation refers to long-running high inflation combined with rising unemployment and weak growth.
Beijing's rigid adherence to a zero-Covid strategy has held back economic recovery as snap lockdowns and long quarantines batter business activity and a recovery in consumption.
Hewson added that "problems in the property sector also aren't helping, where many home buyers are halting mortgage payments in protest at delays to the completion of new homes."
Meanwhile, Iran's foreign minister said Tehran would deliver its "final" proposal later Monday on talks to revive its 2015 nuclear accord with world powers, after Washington had accepted key demands.
A deal would mean that Iran's crude output of 2.5 million barrels per day would no longer be under international sanctions and help relieve supply constraints that have been pushing up prices.
"Iran would flood the market," said analyst Aditya Saraswat at energy research firm Rystad, who added the country could ramp up production by another million barrels per day.
Oil prices, which had already been sharply lower on the Chinese data, pushed even further lower and recording daily drops of more than five percent, before later clawing back some of their losses.
Europe's main equity markets finished with modest gains while Wall Street stocks dipped in morning trading.
Market analyst Fawad Razaqzada at City Index and FOREX.com said talk of a US recession is back after a key manufacturing survey plunged into the negative, a signal of worsening business conditions.
Markets are also keenly awaiting the release Wednesday of the minutes from the Fed's last policy meeting in July for clues to the US central bank's interest rate plans.
Investors are concerned that after successive three-quarter point raises any further increases of a similar magnitude could choke off economic recovery.
The negative reading for the new orders question on the New York Federal Reserve's Empire State Manufacturing Survey -- compared to the positive result from July -- shows that the interest rate hikes may already be having an effect on slowing activity that has fuelled inflation.
Patrick O'Hare, an analyst at Briefing.com, called lower stock prices a reflection "of weakening demand that comes with a weakening economy, and, by extension, a weakening in earnings growth prospects."
Key figures at around 1530 GMT
Brent North Sea crude: DOWN 4.0 percent at $94.21 per barrel
West Texas Intermediate: DOWN 4.1 percent at $88.28 per barrel
New York - Dow: DOWN less than 0.1 percent at 33,742.42 points
EURO STOXX 50: UP 0.3 percent at 3,787.61
London - FTSE 100: UP 0.1 percent at 7,509.15 (close)
Frankfurt - DAX: UP 0.2 percent at 13,816.61 (close)
Paris - CAC 40: UP 0.3 percent at 6,569.95 (close)
Tokyo - Nikkei 225: UP 1.1 percent at 28,871.78 (close)
Hong Kong - Hang Seng Index: DOWN 0.7 percent at 20,040.86 (close)
Shanghai - Composite: FLAT at 3,276.09 (close)
Euro/dollar: DOWN at $1.0187 from $1.0261 Friday
Pound/dollar: DOWN at $1.2082 from $1.2135
Euro/pound: DOWN at 84.37 pence from 84.53 pence
Dollar/yen: DOWN at 133.06 yen from 133.50 yen
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