Oil falls as inflation threatens fuel demand

Oil prices fell on Tuesday, reversing gains from the previous session, as the market anticipated aggressive interest rate hikes from central banks could slow the global economy and reduce fuel consumption.

Brent crude futures LCOc1 for October slipped 81 cents, or 0.7%, to $104.28 a barrel by 0359 GMT after rising 4.1% on Monday.

The October contract expires on Wednesday, while the November contract was down 0.6%.

West Texas Intermediate crude CLc1 fell 33 cents, or 0.3%, to $96.68 a barrel after rising 4.2% the previous session.

In several of the world's greatest economies, inflation is hitting double digits, a level not seen in nearly half a century. This could lead U.S. and European central banks to raise interest rates more aggressively.

"Risk appetite has decreased in expectation of Fed rate hikes.

A drop in European natural gas prices adds to energy crisis uncertainty "Haitong Futures warned.

In the wake of the Ukraine war, Russia's oil output has outperformed forecasts, the chairman of the IEA said Monday.

Moscow, which deems its efforts in Ukraine a "special operation," may find it harder to maintain output if Western sanctions bite.

When the existing arrangement expires, IEA members could release more oil from SPR, the agency's head warned.

Violence in Iraq, OPEC's second-largest production, boosted prices Monday night.

In a long-running conflict over the creation of a new government since last year's elections, government security forces and militias loyal to Shi'ite cleric Moqtada al-Sadr battled in Baghdad's Green Zone, killing 20.

"(Iraq's) domestic turmoil has no less impact on oil prices than Iran's," Haitong's analysts stated.

Tight supply boosts prices. Saudi Arabia, OPEC's top producer, suggested production cuts last week, which sources indicated may coincide with a surge in supply from Iran if it clinches a nuclear deal with the West.

OPEC, Russia, and allied producers meet Sept. 5 to set policy. The American Petroleum Institute will disclose crude inventory statistics on Tuesday, followed by the Energy Information Administration on Wednesday.