Oil slides on strong dollar and weaker demand outlook

© Reuters. FILE PHOTO: Pump jacks operate at sunset in an oil field in Midland, Texas U.S. August 22, 2018. REUTERS/Nick Oxford

By Ahmad Ghaddar

LONDON (Reuters) -Oil prices fell on Tuesday on a strong dollar, and expectations of weakening demand due to fresh COVID-19 curbs in top world crude importer China and fears of a global economic slowdown.

Brent crude futures fell $2.32, or 2.2%, to $104.78 a barrel by 0953 GMT, while U.S. West Texas Intermediate crude was at $101.46 a barrel, down $2.63, or 2.5%. Both contracts fell by about 3% earlier.

The euro sank on Tuesday, trading at near parity with the dollar, and stock markets fell as the prospect of further central bank tightening and worries about the health of economies worldwide unnerved investors.

As oil in priced in dollars, a stronger greenback usually weighs on oil prices because it makes the commodity more expensive for holders of other currencies.

"In the West, the combination of high energy prices and rising interest rates is fuelling concerns about a recession that would have a serious impact on oil demand," Commerzbank (ETR:CBKG) said.

Renewed COVID-19 mobility curbs in China were also weighing on prices, the bank said.

Multiple Chinese cities are adopting fresh COVID-19 curbs, from business halts to lockdowns, to rein in new infections as the highly infectious BA.5.2.1 subvariant appears in the country.

U.S. President Joe Biden would make the case for greater oil production from OPEC when he meets Gulf leaders in Saudi Arabia this week, White House National Security Adviser Jake Sullivan said on Monday.

"Little hope is being assigned to Biden's visit to Saudi Arabia unlocking more production from them or the UAE," said Jeffrey Halley OANDA's senior market analyst for Asia Pacific said in a note.

Spare capacity within the Organization of the Petroleum Exporting Countries is running low, with most of the producers pumping at maximum capacity.

U.S. Treasury Secretary Janet Yellen is in Asia to discuss ways of further strengthening sanctions on Moscow, including setting a price cap on Russian oil to limit the country's profits and help lower energy prices.

International Energy Agency Executive Director Fatih Birol said any price caps on Russian oil should include refined products.

"My hope is that the proposal, which is important to minimise the effect on the economies around the world, gets buy-in from several countries," Birol told Reuters in an interview on the sidelines of the Sydney Energy Forum.

Western sanctions on Russia over the war in Ukraine, which Russia calls a "special military operation", have disrupted trade flows for crude and fuel.