UPDATE 10-Brent oil falls 2 pct to 3-month low on Cyprus fears

Tue Mar 19, 2013 5:00pm EDT

Related Topics

* Cyprus parliament rejects deposit tax for bailout

* Alleged chemical attack in Syria

* U.S. crude stocks fell 413,000 barrels last week-API

* Coming Up: U.S. EIA fuel stocks data at 10:30 a.m. EDT (Adds API data, paragraphs 17-21)

By David Sheppard and Joshua Schneyer

NEW YORK, March 19 (Reuters) - Brent crude oil fell 2 percent to a three-month low under $108 a barrel on Tuesday as uncertainty over a bailout for Cyprus raised concern about the euro zone debt crisis and its impact on energy demand.

Cypriot lawmakers overwhelmingly rejected a deeply unpopular tax on bank deposits on Tuesday, throwing into doubt an international bailout for the troubled euro zone member, needed to avert default and a banking collapse.

The tax proposal, announced over the weekend as a condition of the bailout, has renewed investor concern about the euro zone's ability to tackle its debt crisis, causing stock markets and oil prices to fall this week. Gold and other safe haven assets rose.

"The situation in Cyprus, although small, goes to show that the problems in the EU are far from over and it will exacerbate declining demand," said Natixis analyst Abhishek Deshpande in London.

Brent crude for May delivery touched a three-month low of $107.25 and settled down $2.06, or 1.88 percent, at $107.45 a barrel.

U.S. crude for April delivery settled down $1.58 at $92.16 a barrel.

The spread between the two leading global oil benchmarks, Brent and West Texas Intermediate (U.S. crude) contracted to $14.61 at one point during Tuesday's trading, the narrowest level since mid-January CL-LCO1=R.

The U.S. dollar firmed by 0.3 percent against a basket of foreign currencies. A stronger greenback can help to weaken oil since the dollar-denominated commodity becomes more costly for holders of other currencies.

The result of the vote in Cyprus could also affect oil if it causes a swing in exchange rates, said Tony Machacek, an oil futures broker at Jefferies Bache in London.

"If the euro makes a dramatic move, it will influence oil," he said.

The single currency was down by 0.6 percent against the dollar and traded below $1.29 for the first time since December.

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For a 24-hr Brent chart analysis:

link.reuters.com/tak76t

For a 24-hr chart analysis on oil:

link.reuters.com/vak76t

Thomson Reuters Global Markets Forum:

here

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Iran still presents an element of risk that could limit losses in oil markets regardless of the outcome of the vote in Cyprus, said Thorbjoern Bak Jensen of Global Risk Management.

Europe and the United States last year imposed tough new sanctions aimed at Iran's oil trade to force Tehran to the negotiating table over its nuclear programme.

Insurers have refused to cover Indian refineries that process Iranian crude imports, which may halt deliveries.

But China's biggest refiner said on Tuesday it did not expect to have any insurance problems and planned to use more Iranian oil in 2013.

Additionally, oil traders were watching Syria, where the government and rebels accused each other of launching a deadly chemical attack on Tuesday in what would, if confirmed, be the first use of such weapons in the two-year conflict.

Investors looked ahead to the weekly release of U.S. oil inventory data at 10.30 a.m. EDT (1430 GMT) on Wednesday from the U.S. Energy Information Administration.

Analysts polled by Reuters expected the data to show total U.S. crude inventories rose by 2 million barrels last week on lower refinery utilization, while gasoline stocks were seen falling by 2.1 million barrels.

U.S. fuel stocks data released by industry group the American Petroleum Institute (API) late on Tuesday showed U.S. crude stocks fell by 413,000 barrels last week.

The API said crude oil stocks at the WTI delivery point of Cushing, Oklahoma, fell by 289,000 barrels.

Oil prices were little changed in after-hours electronic trading following the release of the API numbers. (Additional reporting By Dasha Afanasieva and Jessica Donati in London and Florence Tan in Singapore; Editing by William Hardy, Jason Neely, Bob Burgdorfer, David Gregorio and Nick Zieminski)

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