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UPDATE 3-Brent falls ahead of key Greek vote

Published 06/27/2011, 05:46 AM
Updated 06/27/2011, 05:52 AM

* Market eyes Greece's vote on tax hikes, spending cuts

* China signals doubt inflation target would be met

* Gulf oil output unlikely to fall on IEA move

* Coming Up: U.S. personal income at 1230 GMT

(Rewrites, adds quotes, updates prices)

By Zaida Espana

LONDON, June 27 (Reuters) - Brent crude futures fell under $104 a barrel on Monday as the dollar inched up ahead of a key vote in Greece to approve an unpopular austerity plan.

By 0945 GMT, Brent crude futures traded down $1.15 to $103.97 a barrel after plumbing earlier lows of $102.28 a barrel. U.S. light crude futures fell 55 cents to $90.61 a barrel, having touched lows of $89.82 a barrel earlier.

"The price of Brent could fall further to around $100 a barrel this week," UniCredit research analysts said in a note. "We currently have a soft-patch scenario for the economy, but risks have clearly increased."

A parliamentary ballot on Greece's framework austerity package is expected on Wednesday, with lawmakers due to vote on Thursday on a bill containing specific steps to implement it.

Investors also took punts ahead of economic data from the United States that is expected to show slowing growth, while worries about a slowdown in China resurfaced after Premier Wen Jiabao signalled for the first time the country would struggle to meet its 4 percent inflation target this year.

Oil prices have lost around 10 percent over the last three sessions since the International Energy Agency surprised the market with a 60 million barrels release to rein-in prices.

IEA, OPEC SUPPLY

Brent crude prices fell 2 percent on Friday, dropping 7 percent for the week. The contract's premium to U.S. crude fell below $13, down from a record of over $23 hit on June 15, after the IEA surprised the market with a decision to release oil from strategic reserves for the third time in history to replace Libyan supply.

The IEA's decision to release 2 million barrels per day over 30 days is more than the daily loss of Libya's 1.2 million bpd exports, and may help ease concerns that the Organization of the Petroleum Exporting Countries (OPEC) will struggle to meet demand as consumption from emerging nations surges.

"The near-term impact of the availability of these reserves is bearish crude flat price and structure, with the light-sweet grades getting hurt the most, Brent crude in particular," Morgan Stanley analysts led by Hussein Allidina said in a note.

"It also releases pressure on OPEC," said Jonathan Barratt, managing director of Commodity Broking Services in Sydney. "It's more of a genuine consensus to lower import prices to avoid economic slowdown."

Gulf oil exporters are unlikely to cut production in response to the IEA's stock release because demand for their crude is strong, two Gulf OPEC delegates said on Sunday. The group failed to agree on raising output on June 8.

Still, the impact of additional supply on oil markets is likely to be limited unless Libyan leader Muammar Gaddafi steps down, allowing the country to resume production, Barratt said.

"The only way for oil to get lower is Gaddafi," he said. "The market will trade into support and is expected to pick up, but the context is weak."

The U.S. Institute for Supply Management is expected to release on Friday data showing a slower rate of growth for factory activity in June after it grew at its slowest pace in May since September 2009.

China, the world's second-largest oil consumer, recently released a string of disappointing readings on factory activity and exports. Premier Wen's comments on Monday underlined expectations that interest rates will rise further even as economic growth slows down. (Additional reporting by Florence Tan in Singapore; editing by James Jukwey) ))

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