Oil falls on concerns about demand slowing

NEW YORK (Reuters) - 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 .DXY more than 1 percent and helped U.S. equities suffer their worst day in nearly a month. A stronger dollar can pressure dollar-denominated oil prices. .N

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 a barrel. Brent's two-session loss of 1.14 percent was the biggest two-day percentage drop since the period to June 24, when prices dropped almost 8 percent.

The August Brent contract expires on Thursday.

U.S. 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 the 4.5 percent drop for the two sessions to June 24.

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

Brent and U.S. 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 (CBOE.O) Oil Volatility Index .OVX jumped 10 percent to 33.98 percent, pushing above its 200-day moving average of 33.13.

Brent's premium to U.S. 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 as summer maintenance work reduces supplies.

U.S., FRENCH EMBASSIES IN DAMASCUS ATTACKED

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

Several loyalists to Syrian President Bashar al-Assad broke into the U.S. 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.

IEA TRIMS RELEASE VOLUME

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 U.S. 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 northeast Asia who declined supplies beyond contracted volumes, though one buyer each in India and Southeast Asia accepted extra barrels.

(Additional reporting by Gene Ramos in New York, Zaida Espana and Stephen Mangan in London and Alejandro Barbajosa in Singapore; Editing by Marguerita Choy)