Oil prices declined on Tuesday, erasing some of the previous session's gains, as the market anticipated that further aggressive interest rate hikes by central banks could cause a worldwide economic downturn and dampen demand for fuel.
Brent oil futures LCOc1 for October delivery fell 81 cents, or 0.7%, to $104.28 a barrel as of 03:59 GMT on Tuesday, after gaining 4.1% on Monday, the largest gain in more than a month.
Wednesday marks the expiration of the October contract, while the more active November contract was trading at $102.33, down 0.6%.
Following a 4.2% increase in the previous session, the price of U.S. West Texas Intermediate crude CLc1 decreased by 33 cents, or 0.3%, to $96.68 a barrel.
In several of the world's largest economies, inflation is hitting double digits, a level not seen in over half a century. This could lead the United States and European central banks to implement more aggressive interest rate hikes.
"As a result of the expectation that the Federal Reserve would continue to raise interest rates, the appetite for risk has diminished...
A decline in natural gas prices in Europe also adds uncertainty to the energy crisis scenario "analysts from Haitong Futures stated.
Russia's oil output has outperformed forecasts in the wake of the Ukraine conflict, the president of the International Energy Agency (IEA) said on Monday, adding to the downward pressure on prices.
Moscow, which describes its efforts in Ukraine as a "special operation," will find it increasingly difficult to maintain output as Western sanctions take effect, he warned.
When the existing system expires, IEA member nations may release more oil from their strategic petroleum reserves (SPR) if they deem it necessary, according to the agency's chairman.
Monday night's political turmoil in Iraq, the second-largest producer in OPEC, lifted prices.
In a long-running conflict over the establishment of a new government following last year's elections, government security forces and militias loyal to Shi'ite cleric Moqtada al-Sadr battled near the Green Zone in the Iraqi capital Baghdad, killing 20 people.
Analysts from Haitong stated, "As a significant oil exporter with a daily output of over 4 million barrels, (Iraq's) domestic condition has no less influence on oil prices than Iran."
Additionally supporting pricing is a limited supply. Last week, Saudi Arabia, the Organization of the Petroleum Exporting Countries (OPECleading )'s producer, mentioned the potential of production cuts, which, according to sources, may coincide with an increase in supply from Iran if Tehran reaches a nuclear agreement with the West.
On September 5, OPEC+, composed of OPEC, Russia, and partner producers, meets to set policy. On Tuesday, the American Petroleum Institute, an industry group, will provide statistics on U.S. crude inventories, followed by the Energy Information Administration, the statistical arm of the U.S. Department of Energy, on Wednesday.
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