Oil dips on weak manufacturing data, dollar strength

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Investing.com -- Crude oil prices retreated Tuesday, handing back some of last month’s strong gains on worries about slowing global growth, while strength in the dollar also weighed.

By 08:50 ET (12.50 GMT), the U.S. crude futures traded 0.7% lower at $81.22 a barrel, while the Brent contract dropped 0.6% to $84.88.

The crude market recorded strong gains in July, of between 14% and 16%, with expectations of tighter supply largely underpinning markets after production cuts by major suppliers Saudi Arabia and Russia. 

Global manufacturing activity weakness

However, traders have decided to bank some of those profits at the start of the new month, influenced by weak manufacturing activity data in both China, the world’s largest crude importer, and throughout Europe, a major consuming region.

In China, purchasing managers’ index data showed that manufacturing activity contracted for a fourth straight month in July, while overall business activity also deteriorated.

A private survey - which focuses more on smaller, private enterprises - showed earlier Tuesday that China’s manufacturing sector contracted in July, heralding more economic headwinds for the country.

Manufacturing activity across the eurozone contracted in July at the fastest pace since COVID-19 was at its peak, with particular weakness seen in Germany, Europe's largest economy.

The equivalent data is scheduled for release in the U.S. later in the session and is expected to confirm that the manufacturing sector also contracted in July.

Dollar rebound weighs

Strength in the dollar, which has rebounded sharply from a 15-month low over the past two weeks, also provided a headwind to oil markets. The greenback could see more strength this week, with markets awaiting key nonfarm payrolls data on Friday.

A stronger greenback makes crude, which is priced in dollars, more expensive for holders of foreign currencies, potentially impacting demand. 

OPEC meeting eyed

However, the crude market remains not far away from recent three-month highs, helped by the decision of a couple of the world’s biggest oil exporters, Saudi Arabia and Russia to reduce their production levels, further tightening the global market.

The Organization of Petroleum Exporting Countries and allies, known as OPEC+, meets on Friday, and could see Saudi Arabia roll its voluntary cuts through September.

(Ambar Warrick contributed to this article.)