Oil prices fell by about 0.7%, as weak macroeconomic data overshadowed concerns about potential supply disruptions from Middle East violence and the possibility of a U.S. interest rate cut.
"Macroeconomic weakness is increasing worries about oil demand. For the first time since 2011, money managers have turned net negative. The end of peak summer demand is also dampening market sentiment," analysts at ANZ noted.
Some price support came from fears that escalating violence in the Middle East could affect oil supplies, following reports that Israel attacked militant group Hezbollah with explosive-laden pagers in Lebanon.
Investors are also preparing for an easing of the Fed's monetary policy, which could boost U.S. fuel demand and weaken the dollar. According to the CME FedWatch Tool, markets see a 61% probability of a 0.5% rate cut (up from 14% the week before), and a 39% probability of a 0.25% rate cut (down from 86% the week before).
The expectation of U.S. oil purchases for the Strategic Petroleum Reserve (SPR) also had a certain impact on the price of oil. Later today, the focus will be on data on oil reserves in the United States. Economists expect oil inventories to have fallen by 0.1 million barrels last week after rising by 0.5 million barrels a week earlier.