HOUSTON: Oil prices fell nearly $6 a barrel on Tuesday, the steepest decline in about a month, on fears that fuel demand could soften as global central banks hike rates to fight surging inflation, and as unrest in Iraq failed to dent the OPEC nation’s crude exports.
Brent crude futures for October settled down $5.78, or 5.5%, at $99.31 a barrel after touching a session low of $97.55 a barrel.
The October contract expires on Wednesday and the more active November contract was at $97.84, down 4.9%.
US West Texas Intermediate crude dropped by $5., or 5.5%, to $91.64.
Inflation is near double-digit territory in many of the world’s biggest economies. This could prompt central banks to resort to more aggressive interest rate increases, which could slow economic growth and fuel demand.
Oil rises on prospect of OPEC+ supply cut
The European Central Bank should include a 75-basis-point interest rate hike among its options for the September policy meeting given exceptionally high inflation, Estonian policymaker Madis Muller said on Tuesday.
German inflation in August rose to its highest in almost 50 years, beating a high set only three months earlier, data showed. Hungary’s central bank raised its base rate by 100 basis points to 11.75%.
Bets on another oversized Fed rate hike also boosted the dollar. A stronger greenback makes dollar-denominated oil more expensive for buyers with other currencies.
Prices tumbled after comments from Iraq’s state-owned marketer SOMO that the country’s oil exports had been unaffected by unrest, said UBS analyst Giovanni Staunovo.
Baghdad’s worst clashes in years between rival Shia groups continued for a second day before subsiding when powerful cleric Moqtada al-Sadr ordered his supporters to go home.
SOMO said it could redirect more oil to Europe if required.
Prices felt more pressure when Russia’s fastest-growing oil producer, Gazprom Neft, said it plans to double oil output at its Zhagrin field in Western Siberia to more than 110,000 barrels per day.
Investors will watch the meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known collectively as OPEC+, on Sept. 5.
Saudi Arabia last week raised the possibility of production cuts from OPEC+, which sources said could coincide with a boost in supply from Iran should it clinch a nuclear deal with the West.
In another possible supply boost, Venezuela’s oil minister said the country was ready to move ahead with business with the oil major Chevron Corp, adding that progress to relaunch the operations depends on licenses by Washington.
With most producers already operating at or above capacity and growing signs that the global economy may be slowing, some reduction of supply is looking increasingly likely in the coming months, said Matt Weller, head of research at FOREX.com and City Index.
The American Petroleum Institute was due to release data on US crude inventories at 4:30 p.m. EDT (2030 GMT) on Tuesday.
US crude oil stockpiles are likely to have fallen in the week to Aug. 26, a preliminary Reuters poll showed on Monday.
US gasoline futures settled at $2.6944 per gallon on Tuesday, its lowest close since Feb 18, before Russia’s invasion of Ukraine.