Oil prices fell on Tuesday, caused by a weak demand outlook amid the economic slowdown and the possibility of supply increasing if Iranian oil resumes entering global markets.
Brent, the global benchmark for two-thirds of the world's oil, was trading 0.91 per cent lower at $94.23 per barrel at 11.48am UAE time on Tuesday. West Texas Intermediate, the gauge that tracks US crude, was down 0.69 per cent at $88.79 a barrel.
Prices fell roughly 5 per cent on Monday, reaching close to six-month lows.
"Oil prices collapsed like a house of cards on Monday as China's growth fears and prospects of rising supply empowered bears," said Lukman Otunuga, senior research analyst at FXTM.
"Given how Libya is pumping more oil and Iran is moving closer to restoring a nuclear deal, this could result in higher flows at a time when demand remains shaky. Both WTI and Brent remain under pressure on the daily charts with a stronger dollar seen enforcing downside pressures."
Both benchmarks have shed about 6 per cent this month, with the current fundamental drivers opening the doors to further losses this week, Mr Otunuga said.
Ipek Ozkardeskaya, an analyst at Swissquote Bank, said: "The growing prospect of Iranian oil is playing in favour of the downside, as the latest news revealed that Iran responded to the EU’s proposal for reviving the 2015 nuclear deal between the US and Iran, and European politicians now push the US to adopt a 'realistic approach and flexibility' to resolve a couple of remaining issues.”
Iran, an Opec member, late on Monday sent its response to the EU's final draft text to save the 2015 nuclear deal, an official from the bloc said, as Tehran called on the US to show flexibility to resolve three remaining issues.
The current draft of the deal has taken 16 months of indirect US-Iran talks, with the EU mediating between the parties.
The US has said it is ready to quickly seal a deal to restore the 2015 accord on the basis of the EU proposals, but Iranian negotiators said Tehran's "additional views and considerations" to the text would be conveyed later.
“A nuclear deal between the US and Iran should unlock up to four million barrels of Iranian oil per day and help ease the supply crisis,” Ms Ozkardeskaya, said.
Recession fears hitting fuel demand are also putting downward pressure on oil prices.
Opec also lowered its global oil demand forecast for this year because of the Ukraine war, coronavirus pandemic-related movement restrictions and high inflation.
Oil demand is expected to rise by 3.1 million bpd in 2022, down 260,000 bpd from the previous forecast, the group said in its monthly market report last week.
Oil prices are also being weighed down by a weaker global macroeconomic outlook owing to poor data from China.
"While recession fears might still dampen the market mood, the fundamentals point to constrained consumption even without global growth taking a hit," said Norbert Ruecker, head of economics and next-generation research at Julius Baer.
“Weak Chinese data and the prospect of Iranian crude returning to global markets weighed heavily on commodity markets yesterday as concerns rose about the strength of the economic recovery and the potential slowdown in demand growth being compounded by a sharp increase in available barrels,” according to Emirates NBD’s head of research and chief economist Khatija Haque, and Mena economist Daniel Richards.
China, the world’s second-largest economy and a major importer of oil, cut lending rates on Monday to revive demand as the economy slowed unexpectedly in July, with factory and retail activity slumping under Beijing’s zero covid policy to control the spread of the pandemic.