Oil prices plunge 5% after China's economy suffers a shock slowdown in June

• Oil prices dropped 5% on Monday to around six-month lows after data suggested China's economy slowed rapidly in July.
• Signs of progress in the Iran nuclear talks, which could unlock production from the country, also pushed prices lower.

Global oil prices tumbled Monday after data showed China's economic engine sputtered in June and traders weighed the prospect of an increase in Iranian production.

Both Brent and WTI crude, the international and US benchmark oil prices, dropped almost 5% as market participants bet China's demand for energy will be lower than previously expected.

Brent was down 4.88% to $93.36 a barrel as of 7.17 a.m. ET, to trade at around its lowest level since February. WTI was 4.78% lower at $87.62 a barrel, around its lowest since January.

Output at China's factories increased 3.8% in July, a slowdown from June's 3.9% rate and well below analysts' expectations, data showed overnight. Retail sales growth also cooled and youth unemployment hit a record high.

China's central bank lowered two key interest rates Monday, as Beijing tries to boost an economy struggling under the weight of a property crisis and a strict zero-COVID policy.

Bloomberg estimated that China's oil demand fell 9.7% in July, data that analysts said contributed to the sell-off on Monday.

"Crude oil futures trade lower after China's economic recovery unexpectedly weakened in July on renewed COVID lockdowns and after data from Bloomberg showed an apparent 10% year-on-year drop in oil demand last month," Saxo Bank commodities strategist Ole Hansen said.

Hansen said signs of progress on the European Union's proposal to revive the Iran nuclear deal, which would increase output from the Middle Eastern country, was also driving prices lower.

The EU has been pushing to save the deal, and Iran said it would lay out its position on the bloc's latest proposal by Monday night. Iran said it is keen to move forward as long as the US is realistic and flexible, according to reports.

Oil prices have been on a wild ride in 2022, and Brent has soared as high as $140 a barrel after Russia invaded Ukraine in late February. High oil prices caused US gasoline to top $5 a gallon in June.

Yet fears of a global recession have caused oil prices to fall sharply in recent weeks, with market participants particularly focused on Chinese and US demand.

"The figures from China really are a concern and the authorities have a big job on their hands arresting flagging domestic demand," said Craig Erlam, senior market analyst at currency platform Oanda. "That doesn't bode well for oil demand especially when the country remains so committed to zero-COVID."

Oil prices remain elevated, however. Despite the drop on Monday, Brent crude was around 30% higher than a year earlier.