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Brent crude futures were down $1.16, or 1.24%, at $92.13 a
barrel at 0844 GMT, while U.S. West Texas Intermediate crude
futures were trading $1.13 lower, or 1.26%, at $88.55.
"Fears of an economic recession may again dominate the oil
market’s movement due to surging U.S. bond yields following the
Fed’s hawkish stance last week," said Tina Teng, a market
analyst at CMC Markets in Auckland.
The world's top economic policymakers, the U.S. Federal Reserve
and the European Central Bank, have over recent days reiterated
their commitment to fight inflation, signalling tight policy may
persist longer than previously anticipated. Higher interest
rates slow economic growth, which curbs oil demand.
Meanwhile, the U.S. dollar hit a 10-month high on Tuesday, as
higher bond yields attracted investors towards the greenback.
As the major currency used for oil pricing, a stronger dollar
typically weighs on oil demand as it becomes more expensive for
importers relative to their local currency.
Rating agency Moody's said on Monday that a U.S. government
shutdown would harm the country's credit, a warning coming one
month after Fitch downgraded the U.S. by one notch on the back
of a debt ceiling crisis.
"The threat of US government shutdown and its potential impact
on the country’s credit rating can also be a factor in oil
finding it increasingly challenging to provoke the magical
$100/bbl target," said Tamas Varga, analyst at oil broker PVM.
But supply remains tight as Russia and Saudi Arabia have
extended production cuts to the end of the year. "Oil supply is
expected to underwhelm demand in the foreseeable future and
therefore any weakness, even if it is achingly startling, should
not last," Varga added.
Oil prices have risen by around 30% since mid-year driven mostly
by tighter supply, wiping off 0.5 percentage points from global
GDP growth in the second half of this year, according to JP
Morgan.
But the shock "is not large enough to threaten the expansion by
itself", JP Morgan added in a note.
(Reporting by Robert Harvey in London, Katya Golubkova in Tokyo
and Andrew Hayley in Beijing; Editing by Sonali Paul and Kim
Coghill)
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