Oil prices fell more than 1% on Monday as concerns about China’s weakening economic recovery and a stronger dollar weighed on seven-week gains from tighter supplies from OPEC+ production cuts.
Brent crude fell $1.07 or 1.2%, at 0631 GMT to $85.74 a barrel, while West Texas Intermediate crude (WTI) traded at $82.12 a barrel, down 1.3%.
Prices slumped as the US dollar index extended its gains after a slightly larger increase in US producer prices in July boosted Treasury yields, despite expectations that the Fed is at the end of raising interest rates.
A stronger dollar depresses demand for oil, making the commodity more expensive for buyers holding other currencies.
Crude oil has been in overbought territory for some time now, challenging correction expectations. While there were stronger headwinds in the eurozone and China, the focus was on US economic optimism. It’s time to rebalance, but US markets may also need a reality adjustment.
China’s sluggish economic recovery and a stronger US dollar might pull prices down, but OPEC+ will do whatever it takes to boost prices and stabilize markets by tightening supply.
Supply cuts by Saudi Arabia and Russia, two key members of the OPEC+ alliance, are expected to lower oil stocks and potentially push prices higher for the remainder of this year, the International Energy Agency (IEA) reported on Friday.
Reflecting tightening supply, the price spread between first- and second-month Brent held steady on Monday after settling at 67 cents on Friday, the widest since March.
Meanwhile, a Russian warship fired a warning shot at a cargo ship in the Black Sea on Sunday, escalating tensions in the key region for commodity exports from Ukraine and Russia.
The number of oil rigs operating in the United States remained stable at 525 last week, after falling for eight consecutive weeks, according to Baker Hughes’ weekly report.
