Oil Prices Drop to Lowest Level in 3-Month amid Demand Concerns

Oil prices fell to their lowest levels in more than three months as weak trade data from China and renewed doubts about whether the Federal Reserve was finished raising interest rates clouded the demand outlook. 

West Texas Intermediate crude fell as much as 4.3%, settling near $77 a barrel, the lowest price since July 21. Declines deepened in the afternoon with WTI falling below the 200-day moving average, a signal of longer-term weakness that often triggers additional selling pressure.

The dollar rose - which could hurt demand for oil by making the commodity more expensive for importers - after Minneapolis Federal Reserve Bank President Neel Kashkari said it was too early to declare victory over inflation. He also hinted that the risk of too much monetary policy tightening is better than not raising interest rates enough, and said he was concerned that inflation could rise again.

Meanwhile, trade data from China, the world's largest importer of crude oil, showed a risky economic recovery as overseas shipments missed expectations, falling 6.4%, while imports increased 3% last month from a year earlier.

“The data point to a continued decline in China’s economic outlook, driven by deteriorating demand in the country’s largest export destination: the West,” said Bloomberg.

On the supply side, Russia is shipping crude at near its highest rates in more than four months.

Meanwhile, the WTI spot spread - the difference in prices between the two closest contracts - narrowed to its lowest levels since July, suggesting supplies remain plentiful. The premium on near-term supplies narrowed to as much as 13 cents, down from $1.43 three weeks ago, when supply concerns were on investors' minds.

On the other hand, the announcement by OPEC+ leaders, Saudi Arabia and Russia, to continue reducing supplies supported crude oil prices on Monday. The two countries confirmed over the weekend that they will continue to implement production restrictions until the end of the year. OPEC Secretary-General Haitham Al-Ghais expects demand for oil to remain strong despite the challenges facing the global economy.