By early afternoon in Europe, benchmark West Texas Intermediate crude for April delivery was down $1.08 to US$92.37 a barrel in electronic trading on the New York Mercantile Exchange. The contract had risen 42 cents on Friday.
Brent crude, used to price many kinds of oil imported by U.S. refineries, was down $1.56 to US$108.26 per barrel on the ICE Futures exchange in London.
The deposit tax is part of a plan agreed to on Saturday by Cyprus and its international lenders and it prompted savers to rush to banks in Cyprus to withdraw as much of their cash as they could.
Adding to the uncertainty, lawmakers in Cyprus postponed a vote on the €10-billion ($US13-billion) bailout package until Tuesday evening amid concerns the planned tax falls too heavily on smaller savers.
While some analysts said it appeared unlikely that panic would spread to other countries and prompt capital flight from weaker EU economies, lower oil prices were the result of "increased risk aversion" in wake of the Cyprus events, said a report from Commerzbank in Frankfurt.
"In the short term the pressure is likely to continue as further financial investors are expected to withdraw from the market," Commerzbank said.
On Monday, the euro slid against the U.S. dollar and other major currencies. A stronger dollar tends to pushe down oil prices as it makes crude more expensive for traders using other currencies.
In other energy futures trading on the Nymex, wholesale gasoline lost 4.65 cents to US$3.1038 a U.S. gallon (3.79 litres) and heating oil fell 3.29 cents to US$3.9977 a gallon, while natural gas added 6.4 cents to US$3.936 per 1,000 cubic feet.
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