Oil fell toward $69 a barrel on Monday, extending the previous session's drop of more than 2 percent, as bearish sentiment over gasoline markets in the United States continued to dominate investors' concerns.

Oil fell 2.5 percent on Friday, dragged lower by a sell-off in the gasoline market as dealers bet there would ample fuel supply in the United States to meet demand from summer vacationers.

U.S. crude for July delivery fell 40 cents to $69.15 by 0741 GMT (3:41 a.m. EDT). The contract fell $1.82 to settle at $69.55 a barrel on Friday, registering a weekly loss of more than 3 percent.

London Brent crude fell 13 cents to $69.06.

In May, the market was pricing in that there would be a gasoline shortage but the latest data is obviously showing that it is not happening, said Ben Westmore, a commodities analyst at the National Australia Bank.

There are also high stockpiles of crude oil, so the general market sentiment is that the balance of demand and supply in the market hasn't improved too much.

U.S. gasoline supplies rose unexpectedly last week as refiners boosted output to prepare for an expected seasonal uptick in demand, according to government data issued Wednesday.

Still, analysts said ongoing attacks of oil facilities in Nigeria by militant groups may help lift prices in the short term.

Nigeria's main militant group said on Sunday it had attacked three oil installations belonging to Royal Dutch Shell in the Niger Delta, widening a month-old offensive against Africa's biggest energy industry.

Rebels in Nigeria, the world's seventh-largest oil exporter, have been carrying out attacks on the oil industry for years in what they claim is a struggle aimed at spreading the region's energy wealth to the poor local communities.

Another bright spark in the demand picture came from China, where data showed the country's implied oil demand rose 6 percent in May over a year ago, its fastest growth since August 2008, as oil firms produced at record rates on a recovering economy and buyers stocked up ahead of an official fuel price hike.

In the Middle East, Iranian opposition leader Mirhossein Mousavi urged supporters to continue protests over the re-election of hardline President Mahmoud Ahmadinejad, in a direct challenge to the Islamic Republic's leadership.

But some analysts say the political turmoil in Iran so far is a non-event for the oil markets, due to high levels of crude spare capacity and inventories.

In a hypothetical worst-case scenario, even if there is violent regime change in Iran, we would not at all jump to the conclusion that crude production and exports would be shut down, Michael Wittner, global head of oil research of Societe Generale, said in a research note.

Any new government would know that the Iranian economy is highly dependent on revenues from crude exports. In our view, they would almost certainly aim to keep those revenues coming in.

Crude oil speculators on the New York Mercantile Exchange slashed their net long positions nearly in half in the week to June 16, data from the Commodity Futures Trading Commission showed on Friday.

(Editing by Ben Tan)