Oil stays below $97 a barrel

NEW YORK — A stronger dollar and higher interest rates in China are keeping a lid on oil.

Benchmark West Texas Intermediate crude for August delivery lost 8 cents at $96.81 per barrel in midday trading Wednesday on the New York Mercantile Exchange. Brent crude, used to price many international oil varieties, dropped 10 cents to $113.51 per barrel on the ICE Futures exchange in London.

Oil is priced in U.S. currency and tends to fall as the dollar rises. On Wednesday, the dollar rose versus the euro, as borrowing rates in Portugal jumped after the country's bonds were downgraded to junk status. Credit ratings agency Moody's said Portugal, like Greece, will probably need more international financial aid to deal with its debt problems.

And China raised a key interest rate in an effort to control inflation. Higher rates may slow economic growth and demand for oil. China's central bank will raise the benchmark interest rate for one-year loans for the third time this year. China's inflation rate hit a 34-month high in May.

A new report in the U.S. showed sluggish economic growth in the service sector. The Institute for Supply Management, which measures activity for a range of industries including retail, health care, financial services and construction, said the service sector continued to expand, albeit slowly, for the 19th straight month in June.

Meanwhile gasoline prices rose slightly to an average $3.569 per gallon on Wednesday, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular has dropped 41.6 cents from three-year highs set earlier this year, but it's still 84.5 cents higher than the same time last year.

In other Nymex trading for August contracts, heating oil was flat at $2.9562 per gallon and gasoline futures fell by a penny to $2.9710 per gallon. Natural gas lost 6 cents at $4.311 per 1,000 cubic feet.