Crude falls on demand concerns

Crude: down on demand worries

Oil fell for a second consecutive day on Monday as fears of a widening euro-zone debt crisis and a drop in Chinese crude imports rekindled concerns about a demand slowdown.

Fears of Europe's sovereign-debt contagion spreading to Italy affected risk assets, pushing the euro lower and boosting the dollar index more than 1% and helped US equities suffer their worst day in nearly a month.

China's crude oil imports fell in June and inflation in the world's No. 2 oil consumer accelerated to a three-year high, raising the probability of more monetary tightening and slowed economic and oil demand growth.

"Concerns about Europe keep getting ratcheted up and demand expectations lower, and China's inflation and worry about slowing growth add to worries about demand," said Phil Flynn, analyst at PFGBest Research in Chicago.

Brent futures for August fell $1.09 to settle at $117.24 per barrel. Brent's two-session loss of 1.14% was the biggest two-day percentage drop since the period to 24 June, when prices dropped almost 8%.

The August Brent contract expires on Thursday.

US August crude fell $1.05 to settle at $95.15 per barrel, having fallen as low as $94.14. The 3.57% lost in the last two sessions is the biggest two-day percentage loss since the 4.5% drop for the two sessions to 24 June.

Both crude contracts were pressured on Friday after the disappointing US June employment data that cast doubts about any quick rebound for the nation's sputtering economic growth.

Brent and US crude trading volumes were both at just over half a million lots traded and on track to finish just below their 30-day averages.

The Chicago Board Options Exchange's Oil Volatility Index jumped 10% to 33.98%, pushing above its 200-day moving average of 33.13.

Brent's premium to US crude rose to $23.28 per barrel intraday on Monday, as news of reduced North Sea loadings pushed Brent's premium to within pennies of its 15 June record of $23.34.

Crude oil output from nine key North Sea grades is set to fall by 7.7% in August from July as summer maintenance work reduces supplies.

Investors also kept a wary eye on the Middle East, particularly Syria, after the US and French embassies were attacked.

Several loyalists to Syrian President Bashar al-Assad broke into the US embassy in Damascus and security guards used live ammunition to prevent hundreds from storming the French embassy, diplomats said.

"This storming of the embassy raises the Syrian and overall Middle East risk premium," said John Kilduff, partner at Again Capital in New York.

The International Energy Agency said it will release slightly less oil from reserves than initially expected under its emergency release plan. The amount for release is now set at 59.83 million barrels, down 784,000 barrels from an earlier estimate.

The Department of Energy hopes to begin delivering crude from the US reserve to some companies as early as this month after selling all 30.6 million barrels of crude oil initially set for release.

Saudi Arabia's offer of additional crude in August drew little interest from refiners in north-east Asia who declined supplies beyond contracted volumes, though one buyer each in India and South-east Asia accepted extra barrels.

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