Oil prices tumbled 7.5  per cent on Monday and dragged the Canadian dollar and North American stock markets lower.

Stocks in Asia and Europe clung onto gains in a sign of stabilization after a horrendous start to the year.

The benchmark West Texas Intermediate oil contract fell $2.43 or 7.5 per cent to $29.76 US a barrel on Monday at mid-afternoon.

Crude oil prices were falling as Iraq announced record-high oil production, signalling an intention to feed into a heavily over-supplied market.

Iraq's oil ministry said on Monday that the country had record output in December, with its fields in the central and southern regions producing as much as 4.13 million barrels a day. A senior Iraqi oil official said separately the country may raise output even further this year.

TSX, Dow fall

North American markets followed crude lower. The Dow was down 208 points at 15,885 while the TSX was knocked back by 247 points at 12,141.

The U.S. dollar weakened with lower crude prices, but the Canadian dollar weakened further. The loonie was down  three-quarters of a cent at 70.09 cents US at midday.

"The news that Iraq has probably hit another record builds on the oversupply sentiment," said Hans van Cleef, senior energy economist at ABN Amro in Amsterdam. 

Oil's rally late last week may have been an overreaction to the storm approaching the U.S. Northeast, he added.

Also Monday, OPEC's secretary-general Abdullah al-Badri urged oil producers to tackle oversupply to help prices rise. Oil prices have fallen 16 per cent this year amid large U.S. and EU stockpiles of crude.

He blamed much of the oversupply on non-OPEC sources, though OPEC members have been battling each other for market share. 

Asian stocks rose 1.5 per cent and moved further away from last week's four-year low, while London's FTSE index fell just 23 points to 5,877.

Hopes of further monetary stimulus by major central banks, including the European Central Bank, helped take the edge off the bearish sentiment that has dominated since the start of the year.

"Risk-asset markets have received a boost from the European Central Bank hinting at stimulus last week, and investors are also looking at whether the fall in stocks has run its course," said Philip Shaw, chief economist at Investec in London.

Global markets slumped at the start of the year on fears that a slowdown in China would spread to the rest of the world economy, while oil prices sank to 13-year lows. German business morale fell to an 11-month low in January, a survey showed, suggesting growing concern among company executives in Europe's largest economy.

Fed in focus

Market turbulence sets the backdrop for a meeting of the U.S. Federal Reserve on Tuesday and Wednesday, while Bank of Japan policymakers gather on Jan. 28-29.

Analysts are pointing to the Fed's December decision to raise rates as a potential contributor to stock turbulence and saying the U.S. central bank is unlikely to move quickly to further boost rates.

Last week, the European Central Bank signalled it could deliver further monetary stimulus, raising hopes that other central banks might take the same path.

"Attention will now turn to the U.S. Federal Reserve and the Bank of Japan's latest policy decisions later this week, with the main focus on the U.S. central bank in the wake of last month's historic decision to raise rates for the first time in nine years," said Michael Hewson, chief market analyst at CMC Markets.

Emerging market stocks extended their gains and hit a 10-day high, while in Asia, Shanghai stocks added one per cent and Tokyo's Nikkei, which slumped to a one-year low last week, rose 1.2 per cent.

U.S. dollar slips

The U.S. dollar edged down against other major currencies as renewed selling on oil markets drove investors into their current safe havens of choice, the euro and yen. The dollar slipped 0.3 per cent to 118.40 yen, moving away from a two-week high touched on Friday at 118.88. The euro firmed 0.2 per cent to $1.0813, after losing 0.8 per cent on Friday.

Brent crude oil futures fell $2.14 to $30.04 US a barrel.  

An Exxon outlook for energy demand to 2040 predicts demand for oil will increase 25 per cent in the intervening years.

Its forecast estimates renewables will be producing just four per cent of the world's energy needs by then, while oil and gas will meet 57 per cent of global energy needs. 

The forecast that nations will make little progress on cutting back on fossil fuel use has earned the ire of environmentalists.

With files from Reuters