Oil dropped a dollar to below $81 a barrel on Tuesday, sapped by hints of weaker demand for fuel in the world's top energy users and a strengthening U.S. dollar.

U.S. crude for September delivery fell $1.03 to $80.45 a barrel at 6:20 a.m. ET, off a session low of $80.30. London Brent crude was down $1.30 at $79.69.

Oil last week hit a high of $82.97, the strongest since May, but traders had predicted prices would soften because of oversupply in the market.

It's fighting shy of wanting to go higher, said one trader, who could not be named. If the dollar strengthens, it will weaken. If the dollar weakens, it will rise.

A trigger for selling on Tuesday was news of reduced Chinese imports in July.

The world's second biggest energy consumer imported 19 million tonnes or 4.47 million barrels per day of crude in July, down 17.5 percent from June's record 5.4 million bpd, official data showed.

In the same month overall imports rose by 22.7 percent, well short of forecasts, and helping to drive down Chinese share prices .SSEC by 2.9 percent.

The market is under pressure as China is slowing down, Jonathan Barratt, managing director of Sydney-based Commodity Broking Services said.

The market has consistently looked to China to provide support as energy use in the developed world has stalled and many remain bullish for demand there, at least in relative terms.

I don't think more year-on-year falls are likely because the comparison will get easier for the months of August and September because last year's volumes were so bad, said Gordon Kwan, head of energy research at Mirae Assets Securities.


Later on Tuesday, the market will switch focus to the world's biggest gasoline burner the United States, where the Federal Reserve will meet after the European business day.

Speculation has mounted the Fed could signal a willingness to print more money to try to support growth and also renew its promise to keep rates near zero.

For oil markets, the impact is potentially double-edged.

If it weakens the U.S. currency, that could drive the price of dollar-denominated commodities higher because they become relatively cheap for non-dollar buyers.

However, the suggestion the world's largest economy is still flagging has negative implications for oil demand.

Ahead of the meeting, the dollar, which has been in decline since around May, edged higher against a basked of currencies.


The next indications of oil supply and demand in the United States will emerge in data from industry body the American Petroleum Institute later on Tuesday and from the U.S. government Energy Information Administration on Wednesday.

A Reuters poll predicted the data would show U.S. inventories had fallen last week by an average of 1.6 million barrels, but stocks would still be higher than a year ago.

Gasoline inventories were expected to have risen slightly by 100,000 barrels and distillate stockpiles, which include heating oil and diesel fuel, were also expected to rise, up 1.3 million barrels on average.

(Additional reporting by Florence Tan in Singapore; editing by James Jukwey)