Oil fell for a second day on Monday as fears of a widening eurozone debt crisis and a drop in Chinese crude imports rekindled concerns about a demand slowdown. After Friday's disappointing US June employment data, investors remain on edge about a meeting of top European officials to address fears the region's sovereign debt problems could spread to Italy.
The euro fell sharply, and the dollar index rose 1 percent. A stronger dollar can pressure dollar-denominated oil prices. China's crude oil imports fell 8.6 percent in June from the previous month, and 11.5 percent versus a year earlier, Chinese customs data showed on Sunday.
China's annual inflation accelerated to a three-year high in June. The reported rise is expected to increase the chances that China's central bank will keep raising interest rates to tame price pressures that are spreading beyond food and energy. "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 $1.33 to $117 a barrel by 3:02 pm EDT (1902 GMT), having swung between $115.22 and $118.40. The August Brent contract expires on Thursday. US August crude fell $1.05 to settle at $95.15 a barrel, having fallen as low as $94.14. The 3.57 percent lost in the last two sessions is the biggest two-day percentage loss since June 24. Brent and US crude trading volumes were nearly identical at around half a million lots traded, but both were on track to finish just below their 30-day averages.
Brent's premium to US crude rose to $23.28 a barrel intraday on Monday, as news of reduced North Sea loadings pushed Brent's premium to within pennies of its June 15 record of $23.34. Crude oil output from nine key North Sea grades is set to fall by 7.7 percent in August from July to 1.52 million barrels per day (bpd) as summer maintenance work reduces supplies.
This amounts to a total of 47.24 million barrels compared with a planned 51.20 million barrels in July. 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 LLC 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, said the IEA, adviser to 28 industrialised countries. The Department of Energy hopes to begin delivering crude from the US reserve to some companies as early as this month after the full 30.6 million barrels of crude oil initially set for release was sold.