OREANDA-NEWS. July 10, 2013. Oil prices have dropped more than USD 6 from last week’s high to Monday’s three-week low, following the Federal Reserve’s signal that the era of cheap central bank money, which has driven global investment in commodities, was coming to an end.

The declines were compounded by worries over China’s attempt to rein in excessive credit growth.

"People are more comfortable that the US has hit a sustainable recovery, but China is looking worse. Still, in the US even though its economy looks like it’s recovering, oil demand isn’t, so it seems like the market is fundamentally weak," Mitsubishi Corp oil risk manager Tony Nunan said in Tokyo.

Brent crude slipped 36c to USD 100.80 a barrel by 5.10am GMT after reaching a session low of USD 100.70 earlier, not far from a three-week low of USD 99.67 hit on Monday. US oil dropped 51c to USD 94.67 a barrel.

"I think USD 100 is the support level for Brent. A lot of the oil price weakness has to do with the situation in China with the macro picture not looking good," Mr Nunan said.

China shares slumped to their lowest levels since early 2009 on Tuesday, with the financial sector hard hit by worries an official crackdown on easy credit and tighter funding conditions will persist.

A firmer dollar after the Fed outlined a possible timeline for the central bank’s winding down of its stimulus programme has also piled up pressure on commodities priced in the greenback by making them more expensive for holders of other currencies.

"At the same time, bullish positioning and flows into the WTI-Brent trade are exacerbating the pressure on Brent," Morgan Stanley analysts said in a note on Monday.

WTI’s discount to Brent narrowed to USD 5.91 a barrel on Monday, its smallest since November 2011, before widening to USD 6.13 on Tuesday.

US oil prices, however, drew some support from news of record flooding in Canada’s main oil-producing province.

Major Canadian oil pipelines that move almost 1-million barrels a day of Alberta oil sands crude, much of it bound for the US, remained shut on Monday after a spill on a smaller line was discovered at the weekend, a spokesman for operator Enbridge said.

US commercial crude oil stocks probably fell 2-million barrels on average for the week ended June 21 due to lower imports and higher refinery activity, a Reuters poll of six analysts showed.

Growing fears that Syria’s civil war is dragging in other countries, with deadly bomb attacks in Iraq and fighting in Lebanon, also cushioned oil prices.