European gas prices surged to a six-month peak on Tuesday, exacerbating recession fears as the region faces the prospect of rationing following cuts to Russia supplies amid the war in Ukraine.
Oil prices, meanwhile, extended losses a day after tumbling more than five percent on fears demand will subside due to recessions or slow growth in major economies such as China.
In Europe, the natural gas reference price Dutch TTF rallied more than 10 percent at one point to over 250 euros per megawatt hour -- the highest level since the start of March, or not long after Russia's invasion of Ukraine.
"Energy prices are soaring in Europe," said market analyst Fawad Razaqzada at City Index and FOREX.com.
"Reduced Russian energy shipments of around only 20 percent of capacity through the Nord Stream 1 pipeline have increased the risk of rationing in the coming months," he added.
Spiking gas prices would likely push European nations into recession, hitting demand for other goods such as oil.
"A slick of worry is growing about the darkening prospects for global growth as economies slow around the world, pushing down oil prices in expectation of lower demand," noted Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown.
Signs that Iran is moving towards a nuclear deal added to the downward pressure on prices, with an agreement seen as allowing the country to restart oil sales into the world market.
Analysts said Tehran could provide 2.5 million barrels a day, giving a much-needed shot in the arm to supplies, which have been hammered by sanctions on Russia in response to its invasion of Ukraine.
Libya has also boosted production, helping prices drop to six-month lows and wiping out the gains seen after the Ukraine war started.
But analysts warned that there might still be some way to go on an Iran agreement, owing to upcoming US elections.
"A deal with Iran would likely not be popular with US voters and so is hard to envisage before the November mid-terms," said National Australia Bank's Ray Attrill.
"Markets are currently prone to optimism, though, and hopes for a deal... have added to downward pressure on oil prices."
- Walmart boost -
European stocks drifted higher despite dismal survey data from Germany, with the low value of the euro and pound providing a lift.
Wall Street opened mixed, with the Dow edging higher after Walmart beat expectations despite having earlier issued a profit warning.
Shares in the big-box retailer surged more than five percent as trading got underway.
Major markets have been buoyed in recent days on bets that the Federal Reserve would not lift borrowing costs by 75 basis points for a third straight time next month after decades-high inflation eased in the United States as well as data showing the economy to be cooling.