Oil fell along with the single currency and equities after a comment from a German constitutional court that said that Angela Merkel's government had not consulted parliament sufficiently about the configuration of Europe's permanent bailout scheme, the European Stability Mechanism (ESM).

The subsequent bounce in oil prices, however, was capped by more signs that the euro zone economy was likely to remain subdued, keeping oil demand weak in the region.

Brent crude futures briefly slipped to $94.44 a barrel, the lowest since January 2011. It trimmed the earlier losses and trading 63 cents lower at $95.43 by 0600 EDT. U.S. crude was 19 cents lower at $83.08 a barrel.

Brokers said a further fall in Brent prices might be likely now that the important $95 mark has been broken.

"Stop loss liquidation of some long positions was triggered when Brent broke $95.00, compounded by pervading gloominess towards the euro zone," said Mark Thomas, head of Energy Europe at brokerage Marex Spectron.

Spain's short-term borrowing costs soared as investors worried the country, the euro zone's fourth largest economy, will soon be forced to ask for international aid.

The euro and European shares slipped after the German ZEW economic sentiment index dropped sharply on concerns about Spanish bank woes and Greek political instability.

Investors also will watch out for fresh trading cues from the U.S. Federal Reserve's policy meeting and the China flash manufacturing PMI from HSBC this week.

IRAN

Six world powers and Iran resume talks in Moscow for a final day on Tuesday after making no breakthrough on their first day of talks on Monday on how to end a decade-long dispute over Tehran's nuclear program which risks sparking a new Middle East war.

Even though an EU ban on Iranian crude imports will take effect on July 1, the oil market has shown some signs of oversupply. The August Brent crude contract price fell below the September contract, suggesting ample supply in the immediate market.

That is despite the planned maintenance work at the UK's Buzzard oilfield in the third quarter and OPEC's comment last week.

OPEC will reduce output to adhere to its 30 million barrel per day production ceiling and the effects should be seen in July, OPEC Secretary-General Abdullah al-Badri said last week.

The Buzzard oilfield feeds into Forties crude, which is one of the four North Sea crude oil streams used to price about two thirds of world's oil.

(Additional reporting by Luke Pachymuthu in Singapore; editing by Keiron Henderson)

• A Permanent Economic Emergency