Oil slides on euro zone, China fears

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Oil fell sharply on Monday, extending recent heavy losses, as mounting political uncertainty in Greece and worry about the prospects for growth in China added to a sense that the demand outlook is worsening.

Adding to jitters about the future of the euro zone, Greece's radical leftist leader spurned an invitation from the president for a final round of coalition talks on Monday, pushing Athens to the brink of fresh polls.

This added to already mounting worries of a global economic slowdown triggered by last week's lacklustre industrial output data from China, the world's second-largest economy and energy consumer.

Brent crude was down by $1.65 to $110.61 a barrel by 1307 GMT, stretching its losses into a third session and after settling at $112.26 on Friday.

It earlier fell more than $2, and was heading for its lowest close since Jan. 25. It was as high as $128 per barrel at the start of March.

U.S. crude fell $1.82 to $94.31. It sunk to its lowest since December 19.

"With the Greek elections putting in peril the euro zone unity, the Chinese industrial production putting in peril the main engine of growth...last week was a pretty bad week for global sentiment," said Olivier Jakob, at Petromatrix in Zug.

He said this poor sentiment was dragging on into this week, and that a Saudi call for oil at $100 per barrel was adding to the negative tone.

SAUDI PRICE TARGET

The world's biggest exporter, Saudi Arabia wants an oil price of around $100 a barrel and would like to see global inventories rise before demand picks up in the second half of the year, Oil Minister Ali al-Naimi said.

China's central bank on the weekend cut the amount of cash banks must hold as reserves, freeing an estimated 400 billion yuan ($63.5 billion) for lending, after data showed the economy weakening, not recovering, from its slowest quarter of growth in three years.

German chancellor Angela Merkel's conservatives suffered a defeat on Sunday in an election in the country's most populous state, a result which could embolden the left opposition to step up attacks on her European austerity policies.

Giving some support to the oil price, Iran warned Western powers on Sunday that applying pressure on Tehran could jeopardise talks on its nuclear programme, state television reported.

Iran's dispute with the West about its nuclear programme and a European Union embargo on Tehran's oil, set for July, sent prices soaring in the first quarter.

A senior U.N. nuclear official said Iran must give his inspectors access to information, people and sites as he began a two-day meeting with Iranian officials on the Islamic state's disputed atomic activities on Monday.

Technical analysts saw scope for further weakness in Brent crude, given the price action seen in recent days.

"The next support is seen at $108.90 and $108.50 but the price signals are not indicating that the price is basing out at the moment," said Lynnden Branigan, technical analyst at Barclays Capital. (Additional reporting by Jessica Jaganathan in Singapore; Editing by Jason Neely and Alison Birrane)



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