Investing.com -- Oil prices fell slightly in Asian trade on Tuesday, hovering near three-month highs after a strong run of gains as markets digested mixed economic cues from major importer China, while strength in the dollar also weighed.
Crude prices rallied between 14% and 16% in July, with expectations of tighter supply largely underpinning markets after production cuts by major suppliers Saudi Arabia and Russia.
Signs of steady U.S. demand, coupled with growing hopes for more Chinese stimulus measures also aided prices.
But the oil rally somewhat ran out of steam in anticipation of more positive catalysts this week. A recovery in the dollar also limited gains in commodities priced in the greenback.
Brent oil futures fell 0.3% to $85.22 a barrel, while West Texas Intermediate crude futures fell 0.2% to $81.64 a barrel by 22:16 ET (02:16 GMT). Both contracts were at their highest levels since mid-April.
China stimulus in focus after weak PMIs
Oil markets were largely focused on more stimulus measures from world no.1 crude importer China. While officials promised to roll out more measures to support Chinese consumers and businesses in the coming months, they offered scant details on what these measures will entail.
This also came amid purchasing managers’ index (PMI) data showing that manufacturing activity in China slowed for a fourth straight month in July, while overall business activity also deteriorated.
A private survey - which focuses more on smaller, private enterprises - showed on Tuesday that China’s manufacturing sector contracted in July, heralding more economic headwinds for the country.
While promises of more stimulus spending somewhat helped markets look past the weak economic readings, investors were now awaiting more concrete measures from Chinese officials.
Still, investment bank Goldman Sachs hiked its outlook for oil prices this year, citing a potential recovery in Chinese demand and lower chances of a U.S. recession this year.
Dollar strength, Fed fears still in play
Strength in the dollar - which rebounded sharply from a 15-month low over the past two weeks, also provided a headwind to oil markets. The greenback is expected to see more strength this week, with markets awaiting key nonfarm payrolls data on Friday.
Analysts also warned that high oil prices could factor back into U.S. inflation, potentially keeping the Federal Reserve hawkish and supporting the dollar. Friday’s payrolls data is also expected to factor into the Fed’s decision for future rate action.