Oil prices ease on stronger dollar, China demand woes

Oil prices eased on Monday following seven straight weeks of gains buoyed by tightening supply on OPEC+ output cuts, as concerns about China’s faltering economic recovery and a stronger dollar weighed on.

Brent crude futures dropped 29 cents, or 0.3 percent, to $86.52 a barrel by 00:33 GMT while U.S. West Texas Intermediate crude was at $82.95 a barrel, lower by 24 cents, or 0.3 percent.

Prices went down as the U.S. dollar index extended gains on Monday after a slightly bigger rise in U.S. producer prices in July lifted Treasury yields despite expectations that the U.S. Federal Reserve is at the end of hiking interest rates.

Oil may be range-bound this week as China’s sluggish economic recovery and a stronger U.S. currency could depress prices. However, OPEC+ would do whatever it takes to keep supply tight and stabilise markets, CMC Markets analyst Tina Teng told Reuters.

Supply cuts by Saudi Arabia and Russia, part of the alliance between the Organisation of the Petroleum Exporting Countries and their allies, or OPEC+, are expected to erode oil inventories in the rest of the current year. This may drive prices even higher, the International Energy Agency (IEA) said in its monthly report on Friday.

Reflecting tightening supply, the price spread between first and second monthd Brent was steady on Monday after settling at 67 cents on Friday, the widest since March.

A Russian warship had on Sunday fired warning shots at a cargo ship in the Black Sea, ratcheting up tensions in a key area for commodities exports from Ukraine and Russia.

“Escalating tensions between Russia and Ukraine has raised the prospect of disruption to trade in the Black Sea,” ANZ analysts said in a note sent to Reuters, adding that the Black Sea handles around 15 percent -20 percent of oil that Russia sells.

In the U.S., the number of operating oil rigs remained steady at 525 last week, after dropping for eight weeks in a row, according to Baker Hughes weekly report.