Oil prices fall on recovery doubts

Crude oil prices fell by more than a dollar on Monday as worries about the widening eurozone debt crisis and a drop in Chinese crude imports rekindled worries about a demand slowdown.

Together with Friday's dismal US employment data, investors remain on edge about a meeting of top European officials on fears the crisis could spread to Italy, the region's third largest economy.

Brent crude futures for August fell by USD 1.54 to USD 116.79 a barrel by 0802 GMT, while US crude benchmark West Texas Intermediate (WTI) was USD 1.18 lower at USD 95.02 a barrel by the same time.

"Risk aversion is back after the disappointing US jobs data and concerns about the debt situation in Italy. This is putting oil prices under pressure and it seems Brent is vulnerable to further losses," Commerzbank analyst Carsten Fritsch told Reuters.

European Council President Herman Van Rompuy over the weekend called an emergency meeting of top officials dealing with the euro zone debt crisis for Monday morning, reflecting concern that the crisis could spread to Italy.

"(Europe's debt crisis) will continue to be a factor since it will weigh on the euro, which is negative for oil prices," Fritsch added.

In the currency market, the euro fell by 0.42%. A stronger greenback can hurt dollar-denominated commodities such as oil by rendering them more expensive for holders of other currencies.

Investor appetite also remained subdued after China's crude imports tumbled by 11.5% in June from a year earlier to 4.8 million barrels per day (bpd), their lowest in eight months.

Fears that Beijing may raise interest rates further to contain its fastest rise in inflation in three years dampened risk appetite, said Ben Le Brun, market analyst with CMC Markets.

Brent on Friday dipped 0.2% after data showed US jobs growth ground to a near halt in June as employers hired the fewest workers in nine months.

"It's a combination of both pieces of news, the world's two biggest consumers with not good economic data," Le Brun said from Sydney.

"The drop in China's imports probably has to do with the tightening of rates in the past six to 12 months and the US jobs report was a very bad miss. Considering all the headwinds that we have had recently, the market has held quite well."

Reduced loadings of North Sea crude were also supportive for Brent on Friday, while front-month WTI plunged by almost USD 2.50.

WTI's discount to Brent hovered close to USD 22 on Monday after it widened to as much as USD 22.45 in the previous session, the highest since the intraday record of USD 23.34 on June 15, on news that output from the North Sea Forties oil stream will slip to a two-year low in August.

Last week's gains in Brent pushed prices well above the level prior to the release of global emergency stockpiles coordinated by the International Energy Agency, as traders bet the extra 60 million barrels of oil would be insufficient to stop markets tightening later this year.

Fristch at Commerzbank said the premium remained unsustainable and should narrow. "There is an anomaly that needs to correct".

Money managers raised their net-long US crude futures and options positions in the week to July 5, the Commodity Futures Trading Commission said on Friday.

Saudi Barrels

Iran's caretaker oil minister said on Saturday that OPEC was opposed to any increase in output ceilings in the absence of "well-studied justifications".

Saudi Arabia's offer for additional crude in August met scant interest from refiners across northeast Asia who are just taking their full contractual volumes.

Limited demand for extra barrels from Asia, the world's fastest-growing market, would leave the Saudis with few options to find homes for additional cargoes. Top exporter Saudi Aramco was expected to have raised output to near 10 million barrels per day (bpd) in June.