Oil prices fell in a volatile market on Tuesday, as a stronger US dollar and economic uncertainty offset the bullish impact of a price cap placed on Russian oil and prospects of a demand boost in China.
Brent crude futures fell 90 cents, or $1.09%, to $81.78 a barrel by 1055 GMT. West Texas Intermediate crude (WTI) fell 79 cents, or $1.03%, to $76.14.
Earlier in the session, both contracts fell by more than $1 while Brent rose by over $1 in Asian trading.
Crude futures on Monday recorded their biggest daily drop in two weeks after U.S. services industry data indicated a strong U.S. economy.
The data reinforced the belief among investors that the Federal Reserve might stick longer with aggressive interest rate rises, supporting the U.S. dollar index on Tuesday.
A stronger greenback makes dollar-denominated oil more expensive for buyers holding other currencies, reducing demand for the commodity.
“Inflationary headwinds could still cause global economic turbulence in coming months,” said Tamas Varga of oil broker PVM, but added that “China’s gradual COVID opening is a tentatively positive development”.
In China, more cities are easing COVID-19-related curbs, prompting optimism for increased demand in the world’s top oil importer.
The country is set to announce a further relaxation of some of the world’s toughest COVID curbs as early as Wednesday, sources said.
The market was weighing the production impact of a price cap of $60/bbl on Russian crude imposed by the Group of Seven (G7), the European Union and Australia, contributing to market volatility.
The price cap comes on top of the EU’s embargo on imports of Russian crude by sea and similar pledges by the United States, Canada, Japan and Britain.
Russia has declared its intention not to sell oil to anyone who signs up to the price cap.
The threat of losing insurance will limit Russia’s access to the tanker market and could reduce crude exports by 500,000 bpd from February levels, said analysts from Rystad Energy in a note.
Russia’s January-November oil and gas condensate rose 2.2% from a year earlier to 488 million tonnes, according to Deputy Prime Minister Alexander Novak, who expects a slight output decline following the latest sanctions.