SINGAPORE: Brent crude slipped below $108 on Monday, hit by a stronger dollar and investors' worries that European leaders' historic pact on closer fiscal union might not be enough to contain the region's debt crisis.
Europe secured agreement on Friday to draft a new treaty for deeper economic integration but it could take three months to negotiate and may require referendums in countries such as Ireland.
Gold, base metals and the euro fell over scepticism the agreement would resolve the fiscal woes now engulfing the region's top economies, while a surge in China's crude imports revived hopes of demand growth recovery, capping losses.
Brent crude slipped 71 cents to $107.91 a barrel by 0501 GMT, after settling 51 cents higher. US crude fell 70 cents to $98.71, after settling more than $1.07 a barrel higher on Friday.
"Markets are analyzing, scratching beneath the surface to see what the outcome means," said Ben Le Brun, a market analyst at OptionsXpress. "It's probably not a lot, not a silver bullet, but a step in the right direction."
Initial optimism over the European leaders' meeting, and news that China planned a new $300 billion vehicle to invest in Europe and the United States, pushed most markets, from global stocks to oil and metals, higher on Friday.
The deal "provides a framework for medium-term improvement in debt levels," said Ric Spooner, chief market analyst at CME Markets, in a report.
"However, investors are likely to remain nervous about the risk of near term contagion of the European debt situation."
Providing support to oil was weekend data out of China that showed crude imports rose 9 percent from October to 22.96 million tonnes.
It was the second highest volume on record when calculated on a daily basis, hitting 5.52 million barrels per day, just short of an all-time high of 5.67 million bpd in September 2010.
Implied oil demand in China increased to the second highest in history, as refineries ramped up output to a record to ease domestic diesel shortages.
Implied demand, a combination of crude runs and net oil product imports, rose 1.7 percent from a year earlier to about 9.5 million barrels per day (bpd) last month.
"It is a very, very positive factor for the market, given that China is the second biggest consumer of oil," Le Brun said.
A slide in the country's annual inflation rate in November amid a slowdown in industrial output raised expectations the country would loosen monetary policy to stimulate growth, helping boost demand for oil.
"Commodities were also buoyed by expectations of further easing in China after most real activity indicators for November eased and CPI and PPI inflation revealed a marked slowdown," analysts at ANZ said in a note.
Top oil exporter Saudi Arabia surprised markets last week by saying it had boosted output to more than 10 million bpd to feed increased demand from consuming countries.
The International Energy Agency (IEA) said a boost in Saudi production would provide "welcome" relief to rising oil prices, warning continuing hikes threatened to thwart global economic recovery efforts.
For the week ahead, investors are expected to watch for a series of US data numbers such as retail sales, consumer prices, manufacturing and jobless claims -- aside from headlines out of Europe -- to gauge direction.
"This week's set of data out of the United States will be important, particularly because recent economic data from the country has been better than expected," Le Brun said. "It will give an idea on how the world's oil biggest consumer is doing."
Participants are also gearing up for a meeting of the OPEC. The global oil market is balanced, Iranian Oil Minister Rostam Qasemi said on Sunday, calling on some OPEC members to cut back as Libyan output resumes.
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