Oil price drops fast as Goldman charges hit confidence

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The oil price has dropped sharply for a second day as fraud charges filed in the US against Goldman Sachs bank on Friday shook investor confidence.

US light crude oil fell by $1.79 to settle at $81.45 a barrel. London Brent oil lost $1.76 to $84.23

The price of oil has now fallen by about $4 a barrel since Thursday.

Concerns about reduced fuel consumption by planes due to disruption caused by ash from the Icelandic volcano have also hit prices.

Planes across Northern Europe Europe were prevented from flying for a fifth day on Monday, though some services were set to resume on Tuesday.

"It is hard to calculate the total effect of the volcano-related shut down of air traffic, but the net effect is probably in the region of 0.5-1 million barrels a day less oil demand. This is a massive amount," said Torbjorn Kjus at DnB NOR Markets.

There was also a general feeling that the oil price had been over-inflated in recent weeks, analysts said.

"Markets got ahead of themselves with oil prices above $85, which was fundamentally not justified, so there are plenty of reasons to be rather cautious down the road," said Carsten Fritsch at Commerzbank.

The price of oil hit an 18-month high of more than $87 a barrel earlier this month.

On Friday, US financial regulator the Securities and Exchange Commission (SEC) charged banking giant Goldman Sachs of defrauding investors.

The claims concern Goldman's marketing of certain mortgage investments just as the US housing market faltered.

Goldman has rejected the SEC's allegations, saying that it would "vigorously" defend its reputation.