Oil drops below $102 on demand doubts

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Oil fell below $102 a barrel on Thursday in a broader commodities selloff as a decline in China's factory activity entrenched concern about weak demand and on worries about an early scale-back in Federal Reserve stimulus.

China's factory activity shrank for the first time in seven months in May, a survey showed. The dollar index hit a three-year high on Wednesday, weighing on commodities denominated in the U.S. currency.

Brent crude fell $1.18 to $101.42 a barrel by 1240 GMT. Prices are down sharply from a 2013 high of $119.17 reached on Feb. 8. U.S. crude declined $1.38 to $92.90.

"The price weakness was sparked by comments by Fed Chairman Bernanke and poor economic figures from China," said Carsten Fritsch, analyst at Commerzbank. "Compounding this is an ample supply situation."

Bernanke told a congressional committee on Wednesday the Fed could scale back the pace of bond purchases at one of its next few policy meetings.

As well as making oil more expensive for other currency holders, a stronger dollar tends to weigh on oil and other risk assets.

The Fed's three rounds of quantitative easing have released hundreds of billions of dollars into money markets, boosting many commodities, including oil.

Euro zone data on Thursday offered little support for oil prices. While a downturn eased slightly this month, a dearth of new orders means the region's economy is likely to contract again in the second quarter, surveys showed.

Oil also fell on Wednesday pressured by a rise in U.S. gasoline inventories.

A weekly U.S. Energy Information Administration report showed gasoline stocks are close to their highest level for the time of year since 1999, indicating ample supply for the summer driving season when demand rises. (Reporting by Alex Lawler in London and Ramya Venugopal in Chennai; editing by James Jukwey and Jason Neely)

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