Oil prices have dipped amid a drop in factory output in China, signalling slowing demand in one of the biggest oil consuming country.

Brent September crude futures dipped 35 cents to $54.92 after reaching an intraday low of $54.80, reported Reuters.

A preliminary private survey today revealed that factory activity in China’s struggling economy contracted as shrinking orders depressed output.

The flash Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) dropped to below 50 points to 48.2, which is lowest since last April.

"Concerns around the demand environment were heightened further today by the PMI read out of China."

CMC Markets in Sydney chief market strategist Michael McCarthy told the news agency: "Concerns around the demand environment were heightened further today by the PMI (Purchasing Managers’ Index) read out of China."

According to McCarthy, US oil is expected to fall to levels last seen in March at around $42 a barrel and may decline to the mid-$30s if it reaches that mark.

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In July, US crude is down 18% so far and Brent is down 13%.

A weak dollar value backed oil prices making it affordable for other currency holders to buy dollar-denominated commodities.

In case, Saudi Arabia cuts production after the summer oil prices are expected to gain more support.

Analysts believe that a weak outlook for oil prices may compel world’s major oil companies to cut investments.