Oil prices declined on Tuesday, wiping out some gains from the previous session as the market worried that more aggressive interest rate increases from central banks may cause a downturn in the global economy and weaken fuel consumption. After rising 4.1% on Monday, the greatest gain in more than a month, Brent crude futures for October settlement fell 81 cents, or 0.7%, to $104.28 per barrel. The more active November contract was trading at $102.33, down 0.6%, and the October contract expires on Wednesday.
After rising by 4.2% the previous session, U.S. West Texas Intermediate crude was trading at $96.68 per barrel, down 33 cents, or 0.3%. In many of the world’s largest economies, inflation is approaching double-digit territory, a level not seen in over 50 years. As a result, central banks in the United States and Europe may decide to increase interest rates more ferociously.
Russia’s oil production has surpassed forecasts since the end of the Ukraine conflict, according to the president of the International Energy Agency (IEA), which is also putting pressure on pricing. But he claimed that if Western sanctions start to bite, Moscow, which refers to its efforts in Ukraine as “a special operation,” will find it harder and harder to maintain production. When the existing plan expires, IEA member countries may choose to release additional oil from their strategic petroleum reserves (SPR) if they deem it essential.
A constraint on supply is another factor supporting pricing. The Organization of the Petroleum Exporting Countries (OPEC), whose top producer is Saudi Arabia, this week discussed the prospect of production cuts. According to sources, this might coincide with an increase in Iranian supply should Iran successfully negotiate a nuclear agreement with the West.