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Brent futures fell $2.27, or 3%, to $73.05 a barrel by 1105 GMT,
while West Texas Intermediate crude (WTI) fell $2.28, or 3.1%,
to $69.38.
Both benchmarks closed at their lowest since late March in the
previous session, when they also recorded their biggest one-day
percentage declines since early January.
"The Federal Reserve is expected to deliver another
quarter-point increase later today as part of its long-running
battle against inflation," PVM Oil analyst Stephen Brennock
said.
He added that concerns about the health of the U.S. banking
sector and downbeat U.S. jobs data "did nothing to dispel fears
that the U.S. economy is barrelling towards a shallow
recession".
The Fed is expected to hike interest rates by an additional 25
basis points on Wednesday to combat inflation, while the
European Central Bank is also expected to raise rates at its
regular policy meeting on Thursday.
More hikes could slow economic growth and hit energy demand.
Energy prices are also under pressure after data from China over
the weekend showed manufacturing activity fell unexpectedly in
April. China is the world's largest energy consumer and top
buyer of crude oil.
The post-pandemic reopening of China's economy will be pivotal
for Asia, the International Monetary Fund said as it raised its
economic forecast for the region on Tuesday. But it warned of
risks from persistent inflation and global market volatility
driven by Western banking-sector woes.
Meanwhile, U.S. crude stockpiles fell for a third week in a row
for the first time since December, down some 3.9 million barrels
last week, according to market sources citing American Petroleum
Institute figures on Tuesday.
Morgan Stanley lowered its forecast for Brent prices to $75 a
barrel by year-end.
"Downside risk to Russia's supply and upside risk to China's
demand have largely played out and prospects for 2H tightness
have weakened," the bank said in a note, referring to buoyant
exports from Russia despite Western sanctions.
Official stockpile data from the U.S. Energy Information
Administration is due at 10:30 a.m. EDT on Wednesday.
(Additional reporting by Muyu XuEditing by Emelia
Sithole-Matarise, Kirsten Donovan)
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