Oil and other industrial commodities weakened as investors shunned risky assets and China took another step to fight inflation.

ICE June Brent crude, the European benchmark, fell $1.84 to $121.61 per barrel, while US benchmark Nymex May West Texas Intermediate was down $2.54 to $107.12 per barrel.

Markets including industrial commodities were unsettled after Standard & Poor’s lowered its credit rating outlook for the US, which consumes a fifth of the world’s 88m barrels per day of daily demand.

Colin O’Shea, head of commodities of Hermes Fund Managers in London, said: “There has been a risk premium built into the market and we are probably seeing some of that eroded out at the moment. It’s a steady trajectory downwards.”

All six industrial metals traded on the London Metal Exchange finished in the red, with lead for delivery in three months tumbling 3.9 per cent to $2,550 a tonne. Copper, the sector bellwether, dropped 1.6 per cent to $9,230 a tonne, its lowest level in a month.

Nymex May US natural gas, burnt in factories and electric power plants, fell 1.8 per cent to $4.127 per mBtu. Oil has risen 23 per cent in 2011, stoking higher consumer prices and raising concerns that drivers and industrial energy users will pare consumption.

China, the world’s fastest growing oil consumer, on Sunday raised banks’ reserve ratio requirements for the fourth time this year as policymakers move to control inflation.

“That’s going to slow growth, and that has a negative impact on oil,” said Mark Rzepczynski, funds group chief executive at commodity-oriented FourWinds Capital Management in Boston.

In spite of higher prices Ali Naimi, the Saudi oil minister, said the oil market was oversupplied. The kingdom cut output by 800,000 b/d in March, he told reporters.

Saudi Arabia has attempted to make up supplies lost to fighting in Libya. But Libya’s light, sweet crude has been difficult to replace.

“They are delivering a product that nobody wants as much as the product they’re replacing,” said Raymond Carbone. president of brokers Paramount Options in New York.

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