Oil headed for a third monthly drop on Wednesday, the longest declining streak in more than two years, on prospects for slower global growth as central banks tighten policy and China presses on with its zero-Covid-19 strategy.

West Texas Intermediate, which traded above US$92 a barrel after tumbling on Tuesday, has shed more than 6 per cent in August, hitting the lowest since January mid-month.

In the United States, the Federal Reserve has been raising rates aggressively to quell inflation, while Europe is gripped by an energy crisis that may herald a recession. In Asia, growth in China, the top oil importer, has slowed.

Traders are also tracking an array of supply-related issues. While there has been significant unrest in both Libya and Iraq in recent days, oil output in both Opec members appears to be unaffected so far. Separately, talks to revive an Iranian nuclear deal that may unlock greater crude exports have dragged on.

Oil's decline last month marks the latest chapter in what has been a tumultuous year, with prices driven higher in the first half by Russia's invasion of Ukraine, then undermined as central banks shifted tack and Moscow managed to keep most exports flowing.

Crude's recent slump prompted Opec+ heavyweight Saudi Arabia to raise the possibility that the alliance could cut output, although the Russian media reported that the grouping was not discussing such a move at present.

The main theme "is pessimistic macroeconomic expectations, coupled with tight supply from low inventories", said Mr Zhou Mi, an analyst at Chaos Research Institute in Shanghai.

Data on Wednesday highlighted the challenges facing China. Factory activity contracted in August for a second month, with the economy taking a hit from Covid-19 outbreaks, a property market crisis and power shortages.

Commodities including crude oil have also faced headwinds from gains in the dollar, which makes raw materials more expensive for holders outside the US. The Bloomberg Dollar Spot Index has climbed by more than 2 per cent in August as the Fed commits to higher interest rates, with the gauge approaching a record high that was hit in July.

BLOOMBERG