Oil falls 2% in global sell-off

By Annalyn Censky CNNMONEY.com

Oil futures slumped 2% Tuesday as political tension between North and South Korea -- and Europe's continued economic woes -- sparked a sell-off in global stock markets.

What prices are doing: Crude for July delivery, fell $1.46, or about 2%, to settle at $68.75 a barrel Tuesday.

Gasoline prices fell for the 19th consecutive day, slipping to $2.780 a gallon from $2.793 the day before, according to a survey by motorist group AAA.

What's moving the market: Asian financial markets posted steep losses, pushing down oil prices, after North Korea threatened military action against South Korea Tuesday, according to reports by South Korean news agency Yonhap.

European financial markets also declined after a Spanish bank bailout turned attention to the financial health of other European banks.

Meanwhile, U.S. stocks fell about 1.6%.

A combination of economic factors have driven oil prices down over the past month, as investors flee to safe-haven buys such as the dollar and Treasurys.

Europe's debt crisis and volatile financial markets have fueled doubts about a global economic recovery, causing concern for oil traders who were expecting demand for fuel to rise this year. Weekly inventory reports from the U.S. government also show oil stockpiles are building up faster than demand.

The dollar has risen about 9.7% against the euro in the last month, adding to the downward pressure on oil. Because oil is priced in the greenback, a stronger dollar makes it more expensive for foreign investors.

What experts are saying: Europe's debt crisis has investors doubting that a global economic recovery will boost demand for oil, and rising tensions between North and South Korea only piled on the negativity, said Phil Flynn, senior market analyst with PFG Best.

"Obviously the European situation has been the ongoing story, but their bank stocks have fallen again today, and that is reducing confidence that this economic crisis is going to go away any time soon. It also increases the likelihood that demand for oil will be aversely affected," Flynn said