Investing.com -- Oil prices fell Tuesday, retreating from their highest levels this year as weak Chinese services activity data pointed to more headwinds for the world’s second largest economy, and largest crude importer.
By 08:50 ET (12.50 GMT), the U.S. crude futures traded 0.1% lower at $85.50 a barrel, while the Brent contract dropped 0.5% to $88.52.
Both contracts recorded large gains last week, and at the start of this week Brent had climbed near its highest level since late-January while WTI traded close to levels last seen in November 2022.
Chinese economic weakness weighs
Sentiment weakened Tuesday following the release of a private-sector survey which showed that China's services activity expanded at the slowest pace in eight months in August.
The Caixin services purchasing managers’ index rose 51.8 in August, lower than expectations for a reading of 53.6 and July’s figure of 54.1.
Chinese economic growth is considered crucial to shoring up oil demand over the rest of the year, but crude traders have been frustrated by the faltering recovery from its COVID hit.
Eurozone data points toward recession
The economic data out of Europe was also disappointing earlier Tuesday.
Eurozone PMI data showed that the bloc's dominant services industry fell into contraction in August, suggesting the region could soon drop into recession.
Additionally, business activity in Britain's important services sector fell last month for the first time since the start of the year, while the broader composite PMI dropped to its lowest level since January.
Tight supplies provide underlying support
Still, sentiment in the crude market remains constructive overall, with supply still very tight.
Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, is widely expected to shortly announce its will extend a voluntary one million barrel per day oil production cut into October, while Russia indicated last week that it is likely to follow suit.
“Given market expectations, it is unlikely that the two producers would stray away from an extension and so risk a sell-off in the market,” analysts at ING said, in a note.
(Ambar Warrick contributed to this item.)