Oil dipped 2 per cent on Monday, pressured by expected increases to interest rates by major central banks, weighing on demand.
Brent futures fell $1.76 or 2.03 per cent to settle at $84.90 a barrel, as the United States crude dropped $1.78 or 2.23 per cent to trade at $77.90 per barrel.
Expectations that the US Federal Reserve would raise rates by 25 basis points on Wednesday pushed the prices down, as the Bank of England and European Central Bank (ECB) hiked rates by half-point.
The rate increase expected at the Federal Open Market Committee’s January 31- February 1 meeting would bring the policy rate to the 4.5 per cent- 4.75 per cent range.
This is two quarter-point rate hikes short of the level most Fed policymakers in December thought would be sufficiently restrictive to bring inflation under control.
The market also came under pressure from indications of strong Russian supply despite a European Union ban and G7 price cap imposed over its invasion of Ukraine.
Apart from the central bank meetings, a gathering on Wednesday of key ministers from the Organization of the Petroleum Exporting Countries (OPEC) and allies, OPEC+, led by Russia, will also be in focus.
The OPEC+ panel meeting is unlikely to tweak output policy, Reuters reported on Monday.
Earlier on Monday, prices rose on tensions in the Middle East after a drone attack in Iran and hopes for higher Chinese demand.
Israel was allegedly said to be behind the overnight drone attack on a military factory in Iran.
Iran claimed to have intercepted drones that struck a military industry target near the central city of Isfahan and said there were no casualties or serious damage.
Israel has long said it is willing to strike Iranian targets if diplomacy fails to curb the country’s nuclear or missile programmes.
The attack came amid tension between Iran and the West over the former’s nuclear activity and its supply of arms, including its involvement in Russia’s war in Ukraine, as well as months of anti-government demonstrations at home.
The possibility of a rise in Chinese demand has boosted oil in 2023. The world’s biggest crude importer pledged over the weekend to promote a consumption recovery that would support demand.
Traders also remained cautious about a hit to oil production and transportation in Texas after the state oil regulator advised pipeline operators to secure equipment and facilities after forecasts for severe weather over the next several days.