LONDON, Dec 6 (Reuters) – Oil prices fell in a volatile market on Tuesday as a stronger U.S. dollar and economic uncertainty offset the impact of a rise in price caps placed on Russian oil and expectations of rising demand in China.
Brent crude futures were down 90 cents, or $1.09%, at $81.78 a barrel by 1055 GMT. West Texas Intermediate (WTI) crude was down 79 cents, or $1.03%, at $76.14.
In the previous session, both contracts fell below $1, while Brent rose $1 in Asian trade.
Crude oil futures posted their biggest daily drop in two weeks on Monday after US services industry data showed a strong US economy.
The data bolstered confidence among investors that the Federal Reserve could hold off for longer with aggressive interest rate hikes supporting the U.S. dollar index on Tuesday.
A stronger greenback makes dollar-denominated oil more expensive for buyers with other currencies, reducing demand for the commodity.
“Inflationary headwinds could still create global economic turbulence in the coming months,” said Tamas Varga of oil broker PVM, adding that “China’s gradual opening of COVID is a temporarily positive development.”
In China, more cities are easing COVID-19-related restrictions, sparking optimism for increased demand in the world’s top oil importer.
The country is poised to announce a further easing of the world’s toughest COVID restrictions by Wednesday, sources said.
Contributing to market volatility, the Group of Seven (G7), the European Union and Australia were weighing the production impact of the $60/bbl price cap on Russian crude oil.
The price cap comes on top of EU sanctions on seaborne Russian crude imports and similar pledges by the US, Canada, Japan and Britain.
Russia has declared its intention not to sell oil to anyone who signs the price cap.
The threat of losing insurance will limit Russia’s access to the tanker market and could cut crude oil exports by 500,000 bpd from February levels, analysts at Rystad Energy 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 drop following the latest sanctions.
Reporting by Rowena Edwards in London, additional reporting by Muyu Xu in Singapore; Editing by Jason Neely
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