Oil prices drop on rate hikes fears, China's power crunch

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Oil prices drop on rate hikes fears, China's power crunch

TokYO: Oil prices fell on Monday August 22 after three days of gains, due to fears that aggressive US interest rate hikes could cause a global economic slowdown and dent fuel demand.

The October settlement of crude futures declined to US $95.55 a barrel, or 1.2 per cent, by 0054 GMT 8.54 am, Singapore time, with concerns over slowing demand in China because of a power crunch in some areas also weighing on prices.

The US West Texas Intermediate WTI crude futures for September delivery, due to expire on Monday, was down US $1.12, or 1.2 per cent, at US $89.65 a barrel. The contract for US $89.29 in October was down US $1.15, or 1.3 per cent.

Both Brent and WTI went up for a third day in a row on Friday, but fell by 1.5 per cent for the week on a stronger dollar and demand fears.

A possible rate hike by the Fed would cause an economic slowdown and sap fuel demand, said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

He said that China's power restriction in some regions is a concern because it could affect economic activity.

China's southwestern province of Sichuan limiting electricity supply to homes, offices and malls last week because of a severe power crunch caused by extreme heat waves and drought, according to state media and a power company.

The strength of the US dollar, which had been hovering at around a five-week high, also weighed on crude prices because it makes oil more expensive for buyers in other currencies.

On Friday, investors will be paying close attention to comments made by Fed Chair Jerome Powell when he addresses an annual central banking conference in Jackson Hole, Wyoming.

US central bank officials have a lot of time to decide how large an interest rate increase is to approve at the Sep 20 -- 21 policy meeting, according to Richmond Federal ReserveFederal Reserve President Thomas Barkin on Friday.

The Fed is seen as having more room to hike rates than the central banks of other large economies that are more fragile.

The White House said on Sunday that the leaders of the United States, Britain, France and Germany discussed efforts to revive the 2015 Iran nuclear deal, though no further details were provided.

Last week, the European Union and the US said they were studying Iran's response to what the EU called its final proposal to revive the deal, under which Tehran curbed its nuclear program in exchange for economic sanctions relief.