Prices of both Brent and U.S. crude dropped more than 3 percent , reversing a brief rebound and dragging U.S. energy shares down 1.8 percent as the worst performing of the major S&P sectors.
Crude again moved within sight of an 11-year low. Brent settled at $36.62 and U.S. crude settled at $36.81 as last week's short-covering dried up and players worried that prices had more room to swoon.
"You have energy and tax-loss harvesting moving markets back and forth in these last few weeks," said Tim Courtney, Chief Investment Officer at Exencial Wealth Advisors, which oversees $1.4 billion in assets.
In contrast to oil, U.S. natural gas prices settled up 10 percent at $2.228 per million British thermal units as forecasts for colder temperatures led to bets that long-delayed winter weather was finally arriving.
The Dow Jones industrial average fell 23.9 points, or 0.14 percent, to 17,528.27, the S&P 500 lost 4.45 points, or 0.22 percent, to 2,056.54 and the Nasdaq Composite dropped 7.51 points, or 0.15 percent, to 5,040.99.
A weak batch of industrial profits raised concerns about China's economy and sent Chinese stocks lower by almost 3 percent, their biggest drop in a month.
Profits at Chinese industrial companies in November fell 1.4 percent from a year earlier, the sixth consecutive month of decline and another sign that the world's chief engine of growth for the past decade is sputtering.
MSCI's broadest index of Asia-Pacific shares outside Japan gave up early modest gains to fall 0.53, putting it on track for a 12-percent loss this year.
With trading light in the United States and Europe between Christmas and the upcoming New Year's holidays, as well as a holiday on Monday in the United Kingdom, markets could see exaggerated moves this week.
MSCI's all-country world index lost 0.22 percent, while the pan-European FTSEurofirst 300 index closed down 0.54 percent.
In Europe, the drop in oil prices put pressure on energy stocks such as Repsol and Total.
Yields on benchmark 10-year Treasury notes inched down to 2.2322 percent, up 3/32 in price.
The dollar edged lower against a basket of major currencies, off 0.03 percent at 97.951 as bullish bets on the currency this year on a U.S. Federal Reserve rate hike met year-end profit-taking.
But the drop in oil prices hurt currencies linked to the commodity, such as the Australian and Canadian dollars.
The Australian dollar fell 0.1 percent to $0.7248 while its Canadian counterpart fell 0.6 percent to $1.3902, heading back towards this month's 11-year lows.
Spot gold was down 0.7 percent at $1,068.19 an ounce and was on track for its sixth straight quarterly decline, its longest run of quarterly losses since the mid-1970s. —Reuters
