By David Hodari and Benoit Faucon
Commodity prices retreated with stocks Monday, stung by the weakening recovery in fuel demand and a strengthening dollar.
Fears that some of Libya's long-blockaded crude would return to the market added to the pressure on oil pries. Brent-crude futures, the international energy benchmark, fell 4% to $41.44 a barrel while U.S. crude futures dropped 4.4% to $39.31 a barrel.
"The market fundamentals had been weakening since August," said Barclays oil strategist Amarpreet Singh, pointing to an increase in production by the Organization of the Petroleum Exporting Countries and its allies. The demand recovery in India -- the world's third-largest oil consumer -- has also gone into reverse, Mr. Singh added.
The losses spilled from industrial commodities into precious metals. Front-month gold futures fell 2.6% to $1,901.20 a troy ounce, their lowest close since late July, while silver dropped 10% to roughly $24.30 a troy ounce. Those declines were likely sparked by a climb in the U.S. dollar, said Bart Melek, global head of commodities strategy at TD Securities.
Precious metals, like most other commodities, are denominated in dollars and become more expensive to buyers outside the U.S. when the currency gains ground. The WSJ Dollar Index, which tracks the U.S. currency against a basket of others, advanced 0.7% Monday.
Gold's drop also suggests some investors were selling precious metals to raise cash to meet margin calls in the stock market, according to George Gero, a managing director at RBC Wealth Management. Forced selling spurred gold-price declines during the market crisis earlier in the year.
"This is one of the most serious downdrafts I have seen in quite some time," Mr. Gero said. "Silver is taking a much bigger hit because the industrial uses of silver either give it a tailwind or a headwind depending on reopening [of economic activity]."
The decline in oil prices extends a bout of volatility in the crude market. Demand remains well below levels from a year ago and traders are increasingly concerned that it is slowing. OPEC and its allies, meanwhile, have moved to ease the historic production curbs they imposed to bolster prices earlier in the year.
Libyan exports represent another wild-card. The country's National Oil Corp. has restarted production in the east of the country following a deal over the weekend between the internationally recognized government and renegade Russian-backed commander Khalifa Haftar, who had blockaded production there for eight months.
Libyan officials told The Wall Street Journal the country's total production figure was set to rise by 220,000 barrels a day from Thursday. The deal came amid a near decadelong civil war in the North African country. It allowed the state oil company to end force majeure -- the legal status that allows a party to default on its contracts for reasons beyond its control -- on exports.
Libya produced more than a million barrels of oil a day in 2019, according to the International Energy Agency, but several groups have closed or sabotaged oil facilities in recent months. In August, Libya produced just 100,000 barrels a day, the IEA said. Libya's NOC said it would only restart production and exports in facilities that were safe and unoccupied by Russian mercenaries.
Some analysts said the fragile accord in Libya wouldn't derail efforts to bring the supply and demand of oil back into balance. A speedy return to full capacity is threatened by "significant uncertainty on the timing, magnitude and sustainability of such a ramp-up," said Damien Courvalin, head of energy research at Goldman Sachs.
Natural-gas prices also slumped Monday amid concerns that Tropical Storm Beta could cause power outages when it strikes the Gulf Coast, hitting demand. Henry Hub gas futures dropped over 10% to $1.84 per million British thermal units, extending their slide this month to 30%.
--Dan Molinski contributed to this article.
Write to David Hodari at David.Hodari@dowjones.com and Benoit Faucon at firstname.lastname@example.org