SINGAPORE: Brent crude dropped towards $96 a barrel on Monday as weak factory data from top energy consumer China spurred caution, after oil prices posted their fourth biggest daily gain on record in the prior session.

Factory downturn at the world's second biggest economy worsened in June with export orders, which usually give a sense of economic health from major demand centres like North America and Europe, posting the biggest fall since December.

Brent crude fell $1.45 to $96.35 a barrel by 0346 GMT while US crude shed $1 to trade at $83.96.

On Friday, Brent crude rose more than $6 a barrel while US crude jumped by more than $7 - the fourth largest daily gains in dollar terms since the contracts were launched - as optimism coursed through financial markets on a surprise deal by European leaders to shore up the region's banks.

“Chinese data is one of the contributors to the softer turn this Monday, but I think the oil market has had time to think about the implication of the EU deal over the weekend and is reacting now,” said Ric Spooner, chief market analyst at CMC Markets.

“Until they (EU leaders) come up with an actual agreement there's still a fair way to go as we still need to see the details of the agreement and conditions attached to it.”

A firmer dollar, as investors looked for fresh reasons to extend a rally sparked by initial euphoria over the latest European push to tackle the region's debt crisis, weighed on commodities priced in the greenback.

Worries about oil demand growth also played a role in dragging down prices.

A private sector survey on Monday echoed government data released earlier showing factory activity in China shrank in June at the fastest pace in seven months as new export orders tumbled to depths last seen in March 2009.

The HSBC Purchasing Managers' Index (PMI) fell to 48.2 after seasonal adjustments, its lowest since November 2011, while China's official PMI fell to a seven-month low in June.

However, oil prices were expected to find support from a strike by offshore workers in Norway's oil sector that entered its second week on Sunday with labour unions bracing for a long conflict and possible escalation to further lower output from the eighth largest oil exporter.

Lower exports by Iraq should also aid. Iraq's oil exports dropped to 2.403 million barrels per day (bpd) on average in June compared with 2.452 million bpd in May, the oil ministry said over the weekend. This comes as European Union sanctions on Iran's crude started on Sunday.