Oil futures fell for a third day on Wednesday, as a stronger dollar and worries about weaker demand and rising interest rates outweighed supply concerns that followed last week's OPEC+ cut to its production target.
Both OPEC and the U.S. Energy Department slashed their demand outlooks. Last week, together with allies including Russia, OPEC sent prices rising when it agreed to cut supply by 2 million barrels per day (bpd).
Brent crude futures last lost $2.02 or 2.14% to $92.27 a barrel. U.S. West Texas Intermediate crude lost $2.38, or 2.66%, at $876.97.
OPEC on Wednesday cut its outlook for demand growth this year by between 460,000 bpd and 2.64 million bpd, citing the resurgence of China's COVID-19 containment measures and high inflation.
"The world economy has entered into a time of heightened uncertainty and rising challenges", OPEC said in its monthly report.
The U.S. Energy Department lowered its expectations for both production and demand in the United States. It now sees just a 0.9% increase in consumption in 2023, down from a previous forecast for a rise of 1.7%. Crude production is expected to grow by 5.2%, down from the 7.2% previously forecast.
The energy market is under pressure as well from the dollar, which rallied against low-yielding currencies like the yen. The Federal Reserve's commitment to keep raising interest rates to stem high inflation has boosted yields, making the U.S. currency more attractive to foreign investors.
On Wednesday, Minneapolis Fed President Neel Kashkari said the Fed will stick to its current course as "we have not yet seen much evidence that underlying inflation...is yet softening."
U.S. producer-level inflation fanned worries on Wednesday, as wholesale prices rose more than anticipated. A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil and other risk assets.
"In the short-term, you can't fight the Fed," said Phil Flynn, analyst at Price Futures Group in Chicago. "At some point, oil is going to disconnect from that, though - when you get into winter you're not going to care about inflation."
OPEC's decision has angered the United States, with U.S. President Joe Biden vowing unspecified "consequences" for relations with Saudi Arabia after the move, due to current tightness in supply worldwide.
Washington's response has "amplified the initial impact in the oil market," said Torbjorn Soltvedt, analyst at risk intelligence company Verisk Maplecroft, adding that the extent of the impact on oil output may be more muted than suggested by the OPEC+ decision.
The one major energy contract trading in positive territory on Wednesday was heating oil, as those futures rose by 1.7%, a signal to traders of ongoing worry about winter supplies.
Russia's state-owned pipeline monopoly Transneft on Wednesday said it had received notice from Polish operator PERN about a leak on the Druzhba oil pipeline, Interfax reported.
The International Monetary Fund on Tuesday cut its global growth forecast for 2023 and warned of increasing risk of a global recession.