(Reuters) - Brent crude slipped below $112 on Monday on a worsening oil demand outlook after talks to form a new government in Greece failed, and as signs of a slowing Chinese economy outweighed the country's latest move to ease monetary conditions.
Investor caution, evident from the weakness in other riskier assets as well, was heightened as 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 the already mounting worries of a global economic slowdown triggered by last week's lackluster industrial output data from China, the world's second-largest economy and energy consumer.
Brent crude slipped 86 cents to $111.40 a barrel by 03:26 a.m. EDT (0726 GMT), stretching its losses into a third straight session, after settling at $112.26 on Friday.
U.S. crude fell more than a $1 to $94.99, after touching a low of $94.91 earlier in the session - its lowest since December 20.
The path of least resistance for oil is down, on sentiment on the euro zone and weak data from China on Friday, said Ben Le Brun, market analyst at OptionsXpress in Sydney.
Although China has cut banks' cash reserves, traders are focusing on the negative and if something happens in Europe this week, oil prices will be further pushed down.
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.
But the data is not very worrying from a credit or rating perspective, said agency Fitch Ratings on Monday.
Senior director for Fitch Ratings in Asia, Andrew Colquhoun, said he does not expect a hard landing in China's economy and the weakening was part of a deliberate policy-driven slowdown.
Ric Spooner, chief market analyst at CMC Markets, said investors were unlikely to be too bullish in their response to China's easing of monetary policy at this early stage.
It may be some time yet before the cumulative impact of the easing in China's monetary settings is sufficient to give markets a sense that an upturn in the business cycle is imminent, he said in a note on Monday.
Investors have now turned their focus to economic data from Europe's largest economy, Germany. The country's flash gross domestic product data due on Tuesday is expected to show the economy expanded by a meager 0.1 percent in the first quarter after a 0.2 percent contraction at the end of last year.
German chancellor Angela Merkel's conservatives suffered a crushing 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.
IRAN RISK PREMIUM
Adding to the geopolitical risk premium, Iran warned Western powers on Sunday that applying pressure on Tehran could jeopardize talks on its nuclear program, state television reported.
Iran's dispute with the West about its nuclear program and a European Union embargo on Tehran's oil, set for July, sent prices soaring in the first quarter.
The West suspects Iran is seeking to develop nuclear weapons, but Tehran says its program is purely for peaceful purposes such as power generation.
Iran and the International Atomic Energy Agency (IAEA) are holding a third round of talks in Vienna on May 14-15, where the U.N. atomic watchdog will press its demand for access to an Iranian military site.
The meeting will test Iran's readiness to address U.N. inspectors' suspicions of military links to its nuclear program, ahead of high-stakes talks in Baghdad next week between six world powers and the Islamic Republic.
Tensions between Iran and the West are likely to keep oil prices high despite a dramatic improvement in world supply and a big build in stocks, the International Energy Agency said on Friday.
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.
The kingdom is working to bring Brent crude prices to that level, he added. The country said it pumped 10.1 million bpd in April, its highest for more than 30 years, in its bid to meet growing demand and curb oil prices.
(Editing by Himani Sarkar)