* Cyprus expected to reject on bank deposits levy on Tuesday
* Coming Up: API weekly oil inventories data; 2030 GMT (Adds quote, updates prices)
By Dasha Afanasieva and Jessica Donati
LONDON, March 19 (Reuters) - Brent crude oil fell on Tuesday, trading below $109 a barrel as uncertainty over a bailout for Cyprus intensified concerns about the euro zone debt crisis, and energy demand if the economic picture darkens.
Cyprus's parliament was set to reject divisive tax on bank deposits in a vote scheduled for 1600 GMT on Tuesday, pushing the island closer to a debt default and banking collapse.
The proposal announced over the weekend shattered calm in the euro zone and caused global markets and the euro to tumble on Monday.
"The situation in Cyprus, although small, goes to show that the problems in the EU are far from over and it will exacerbate the declining demand within EU, keeping a lid on oil prices if not pushing them down," said Natixis analyst Abhishek Deshpande in London.
Brent crude for May delivery was down 71 cents at$108.80 a barrel by 1440 GMT, holding above a three-month low briefly hit on Monday. U.S. crude for April was down 27 cents at $93.47 a barrel.
The result of the vote in Cyprus could also affect oil if it causes a swing in exchange rates, said Tony Machacek, an oil futures broker at Jefferies Bache in London.
"It the euro makes a dramatic move, it will influence oil," he said.
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For a 24-hr Brent chart analysis:
http://link.reuters.com/tak76t
For a 24-hr chart analysis on oil:
http://link.reuters.com/vak76t
Thomson Reuters Global Markets Forum:
http://online.thomsonreuters.com/trading/gmf/
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Iran continues to present an element of risk that could cap losses in oil markets regardless of the outcome of the vote in Cyprus, said Thorbjoern Bak Jensen of Global Risk Management.
Europe and the United States last year imposed tough new sanctions aimed at Iran's oil trade to force Tehran to the negotiating table over its nuclear programme.
Insurers have refused to cover Indian refineries that process Iranian crude imports due to Western sanctions in a move that could halt deliveries, raising concerns other Asian buyers may face a similar snag.
That said, China's biggest refiner said on Tuesday it did not expect to have any insurance problems and planned to use more Iranian oil in 2013.
Across the Atlantic, oil prices have been supported by expectations of a stronger economy.
Investors looked ahead to the weekly release of U.S. oil inventories data. A further fall in crude stocks at oil futures delivery hub Cushing, Oklahoma, could strengthen West Texas Intermediate (WTI) prices against Brent.
Brent's premium to WTI for May
U.S. commercial crude stockpiles were expected to have risen 2 million barrels last week on low refinery runs, a preliminary Reuters poll of analysts showed on Monday. (Additional reporting By Florence Tan in Singapore; Editing by William Hardy and Alison Birrane)
