By Peter Nurse
Investing.com -- Oil prices weakened Tuesday on continued fears that tight monetary policies will result in the weakening of global economies, softening fuel demand, and as supply concerns ease.
By 09:25 ET (13:25 GMT), U.S. crude futures traded 3.1% lower at $94.05 a barrel, while the Brent contract fell 2.7% to $100.15.
U.S. Gasoline RBOB Futures were down 4.2% at $2.6031 a gallon.
Central banks in the United States and Europe are struggling to cope with soaring inflation, resorting to more aggressive interest rate hikes that could curtail economic growth and weigh on fuel demand.
German inflation increased in August to 7.9% compared to the same period last year, reversing two consecutive months of slowing, according to preliminary data on Tuesday, while on an EU-harmonized basis, the figure jumped to 8.8%, up from 8.5% in July. Spain – the Eurozone’s fourth-biggest economy – said its annual rate fell slightly last month, but only to 10.4% from 10.8%.
The August Eurozone CPI release is due Wednesday, and is expected to show a rise of 9.0% on an annual basis, up from 8.9% the previous month.
This followed hawkish speeches from a number of central bankers at the Fed’s Jackson Hole Symposium at the end of last week, including European Central Bank board member Isabel Schnabel.
"In July we decided to raise rates by 50 basis points because we were concerned about the inflation outlook," she said. "The concerns we had in July have not been alleviated... I do not think this outlook has changed fundamentally."
On the supply side, concerns appear to have been soothed despite civil unrest in both Iraq and Libya, two important OPEC members.
Iraq's state-owned marketer SOMO said that the country's oil exports are unaffected by clashes between Shi'ite Muslim groups, which have spilt into a second day, while there have also been disturbances in the Libya capital, Tripoli.
“With Libya pumping around 1.2MMbbls/d, the market is somewhat nervous about potential supply disruptions,” said analysts at ING, in a note. “Although, given how volatile Libyan supply has been in recent years, one would think that there was some level of risk premium already priced into the market.”
The Organization of Petroleum Exporting Countries and allies, a group known as OPEC+, is set to meet early next week to decide future production levels.
The Saudi Arabian energy minister floated the idea last week of the group cutting output levels, saying the futures market was failing to reflect the tightness of the physical market.
That said, it could be quite difficult to justify cutting output with prices still around the $100/bbl level, and a number of members would be reluctant to potentially reduce their incoming revenue streams.
Elsewhere, the American Petroleum Institute updates on U.S. crude and product stocks at 16:30 ET as usual, and a modest 600,000 barrel drop in crude inventories is expected.