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Oil prices drop 1% on fears of weaker demand

Published 08/06/2023, 08:29 PM
Updated 08/07/2023, 05:31 PM
© Reuters. FILE PHOTO: Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. REUTERS/Drone Base/File Photo
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By Erwin Seba

HOUSTON (Reuters) -Oil prices settled down 1% on Monday, after six straight weekly gains, as investors braced for weaker demand from China and the United States, the world's two biggest economies.

Brent crude settled 90 cents, or 1.04% lower, at $85.34 a barrel. U.S. West Texas Intermediate crude settled down 88 cents, or 1.06%, at $81.94 a barrel.

Analysts noted the six straight weekly gains and pointed to the impending early September end of the U.S. summer driving season and lower than expected demand from China.

"The China story is the headwind on this market," said John Kilduff, partner at Again Capital, pointing to a drop in tourism.

"The summer driving season is winding down in the United States," said Robert Yawger, director of energy futures for Mizuho Securities USA. "If you don't need as much gasoline, you don't need as much oil."

The dollar index rose against major currencies on Monday, recovering from Friday's losses as a Federal Reserve official made comments supporting additional interest rate hikes. A stronger dollar makes crude more expensive for investors holding other currencies.

Fed Governor Michelle Bowman said additional interest rate hikes will likely be needed to lower inflation to meet the Fed's 2% target.

Also, Polish pipeline operator PERN said it expects to resume flows on Tuesday on a pipeline that transports oil to Europe, easing worries of supply constrains.

PERN had halted pumping through a section of the Druzhba pipeline after detecting a leak in central Poland on Saturday.

Saudi Arabia, the world's top oil exporter, last week extended its production cut to the end of September, and said more could follow.

In line with production cuts, Saudi Aramco (TADAWUL:2222) on Saturday raised the official selling prices for most grades it sells to Asia for a third month in September.

Russia added to the supply tightness with an announcement it will cut oil exports by 300,000 bpd in September.

© Reuters. FILE PHOTO: Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. REUTERS/Drone Base/File Photo

Chinese economic data this week will be in focus as the market seeks to gauge Beijing's appetite for more stimulus measures to support the world's second-largest economy.

Investors will also monitor the U.S. consumer price index reading on Thursday for clues on the Federal Reserve's monetary policy path.

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