Oil hits 26-month low under $97 on weak China data

By Christopher Johnson

LONDON (Reuters) - Brent crude oil fell below $97 per barrel on Monday to its lowest in more than two years as lacklustre economic data from China, the world's top energy consumer, cast a shadow over the outlook for oil demand at a time of abundant supply.

China's factory output grew at the weakest pace in nearly six years in August, while growth in other key sectors also cooled, raising fears the world's second-largest economy may be at risk of a sharp slowdown.

October Brent, due to expire on Monday, fell as low as $96.21 a barrel, its weakest since July 2, 2012. The futures contract recovered to around $96.70 by 1325 GMT, down 41 cents.

U.S. crude was down 40 cents at $91.87, after touching $90.63 - near a 16-month low of $90.43 hit last week.

"Struggling global economic growth has resulted in falling growth in global oil demand," PVM oil analyst Tamas Varga said, adding that concerns over conflict in the Middle East, North Africa and Russia had not translated into supply disruptions.

Chinese data, which showed a drop in power generation for the first time in four years, came on the heels of downward revisions in 2014 and 2015 global oil demand growth estimates by the International Energy Agency last week.

On the supply front, Libya's oil production is expected to rise to 1 million barrels per day (bpd) in October. Libya was supplying almost nothing to world oil markets four months ago.

Oil ministers from the Middle East Gulf said last week the oil price drop was unlikely to spur action by the Organization of the Petroleum Exporting Countries (OPEC) unless crude fell below $85 a barrel.

A rally in the U.S. dollar against major currencies has also helped weaken oil. Investors will be closely watching the meeting of the Federal Open Market Committee later this week for clues on when the United States will raise interest rates.

A stronger U.S. currency makes dollar-denominated oil more expensive for holders of other currencies.

Investors continue to keep an eye on geopolitical tensions for indications of any new threat to supply.

The United States and European Union imposed fresh sanctions on Moscow last week, hampering exploration of Russia's huge Arctic and shale oil reserves and setting rules on tougher financing of existing Russian projects.

(Additional reporting by Jane Xie in Singapore; Editing by Michael Urquhart)