Oil fell nearly 2% on Monday as China's economic outlook remained weak amid an ongoing trade war with the United States and market fears of supply shortfalls and conflicts in the Middle East after the 14 September attack on Saudi Arabia faded.

Brent crude futures were down $1.07, or 1.7%, at $60.84 a barrel by 12:29 am CST (1729 GMT). US West Texas Intermediate (WTI) crude futures fell $1.04 cents, or 1.9%, to $54.87.

Both benchmarks were on track for little price changes in September after volatile month where prices spike nearly 20% after the attacks halved Saudi Arabia's output, but have pared nearly all those gains as output has been quickly restored.

For the quarter, however, global benchmark Brent was set for a 8.6% loss, while WTI was down about 6.1%, as concerns that the trade war between the United States and China has plunged global economic growth to its lowest levels in a decade weighed on oil demand growth.

China's official Purchasing Managers' Index (PMI) was slightly improved this month, increasing from 49.5 in August to 49.8 in September, but remained below the 50-point mark that separates expansion from contraction on a monthly basis, data from the National Bureau of Statistics showed.

China, the world's largest crude importer, warned of instability in international markets from any "decoupling" of China and the United States, after sources said US President Donald Trump's administration was considering delisting Chinese companies from US stock exchanges.

"The US and China are still far from any type of agreement. The concern is oil demand is not going to be there," said Kyle Cooper, an oil analyst at IAF Advisors.

Saudi Aramco last week restored full capacity to the level before the attacks on its oil facilities, Ibrahim Al-Buainain, chief executive officer of its trading arm, said on Monday at a conference in the United Arab Emirates.

The world's top oil exporter Saudi Arabia has restored capacity to 11.3 million barrels per day after the attack knocked out 5.7 million bpd of the kingdom's output, sources told Reuters last week, though Saudi Aramco has yet to confirm its operations have been restored fully.

The "much quicker than expected return of Saudi oil (supply) as we go into refinery maintenance season" was weighing on prices, said Andy Lipow, president of Lipow Oil Associates in Houston.

Market fears of broader escalating tensions in the Middle East after Saudi Arabia and the United States blamed the attacks on Iran, have also faded somewhat, easing upward pressure on prices, analysts said.

Saudi Arabia's Crown Prince Mohammed bin Salman, often referred to as MBS, said in an interview broadcast on Sunday he would prefer a political solution to a military one in response to attacks.

But he warned oil prices could spike to "unimaginably high numbers" if the world does not come together to deter Iran.

Money managers cut their net long US crude futures and options positions in the week to Sept. 24, the US Commodity Futures Trading Commission (CFTC) said on Friday.

"As long as peace breaks out in the Middle East, we'll see oil continue to trade lower," said Robert Yawger, director of energy futures in New York.

Oil prices are likely to remain steady this year, a Reuters survey showed, with supply shocks such as the attack on Saudi Arabia countering flagging demand.

Analysts forecast that Brent crude would average $65.19 a barrel in 2019 and WTI $57.96.

Production

Oil drops 2% on Chinese data, Saudi output recovery