Oil drops near $71 as Chinese stocks fall

Oil fell towards $71 a barrel on Monday as a drop in China's key stock index and weaker European equities stoked worries about the pace of economic recovery and a revival in energy demand.

China's key stock index dived 6.74 percent on Monday to a three-month closing low and recorded its second-biggest monthly loss in 15 years. European equities opened lower.

"I'm sure that weaker stock markets are feeding through into lower oil prices. It could indicate weaker demand from China," said Christopher Bellew, a broker at Bache Commodities in London.

U.S. crude for October fell $1.44 to $71.30 a barrel by 0916 GMT. London Brent crude fell $1.69 to $71.10.

"The sharp drop in Chinese markets is causing concerns and is inevitably making some investors rethink on the risks to China's economy and question their assumptions on the country's growth rate and energy consumption," said Daniel Liu, a commodities strategist at MG Global Singapore.

Jitters about the Chinese economy, the world's second-largest oil consumer, also weighed on other Asian stock markets.

The Organization of the Petroleum Exporting Countries meets to review output on Sept. 9 in Vienna. Several ministers and officials from the group have said it is likely to leave output targets unchanged.

Even though OPEC agreed 4.2 million barrels per day of supply curbs late last year and has kept output targets steady so far in 2009, actual production has been rising in recent months according to industry surveys. In a further sign of that trend, Abu Dhabi, the main producer in OPEC member the United Arab Emirates, will lift supply to Asia in October, the state oil firm said on Saturday.

On the weather front, Hurricane Jimena blew into a dangerous Category 4 storm and was on track to hit resorts on the Baja California peninsula on Tuesday, although there were no threats to oil rigs.