Global oil prices slid below $80 per barrel for the first time since January on Tuesday, extending a downward trend as growing concerns about global demand offset any bullish effects from an EU-led price cap on Russian oil sales.
Brent crude futures settled down 4.03%, to $79.35 a barrel, their lowest since Jan. 4. West Texas Intermediate crude (WTI) fell 3.48%, to $74.26 after hitting its lowest level this year.
"In this market, the sentiment is more negative," said Eli Tesfaye, senior market strategist at RJO Futures. "We could be looking at $60-a-barrel WTI the way that things are going. I think $80s are going to be the new high, and I would be very surprised to see any higher than that."
Service-sector activity in China has hit a six-month low, and European economies have slowed due to the high cost of energy and rising interest rates.
If current declines hold, Brent crude will post its biggest single-day slump since late September.
Both Brent and WTI futures on Monday recorded their largest daily drop in two weeks after U.S. services industry data indicated a strong U.S. economy and drove expectations of higher interest rates than previously forecast.
The U.S. dollar index edged lower on Tuesday but was still buoyed by bets on higher interest rates, following the biggest rally in two weeks on Monday.
A stronger greenback makes dollar-denominated oil more expensive for buyers holding other currencies, reducing demand.
In China, more cities are easing COVID-19-related curbs, prompting expectations of increased demand in the world's top oil importer, although that has not been enough to rally futures.
U.S. crude oil stocks are forecast to have fallen last week. The American Petroleum Institute's weekly report is due later on Tuesday, followed by government data on Wednesday.
"Oil markets will likely stay volatile in the near term, driven by COVID headlines in China and central bank policies in the U.S. and Europe," UBS analyst Giovanni Staunovo said.
The market was also weighing the production impact of a price cap of $60 per barrel on Russian crude imposed by Group of Seven (G7) nations, the European Union and Australia. So far there is a "lack of an impact on Russian flows", said Matt Smith, lead oil analyst at Kpler.
"Russian seaborne exports and production are just not dropping. Along with fears of further rate hikes - crude is getting swept up in the risk-off tilt of broader markets," Smith said.
Russia has said it will not sell oil to anyone who signs up to the price cap. Russia's January-November oil and gas condensate production rose 2.2% from a year ago to 488 million tonnes, according to Deputy Prime Minister Alexander Novak, who expects a slight output decline following the latest sanctions.