- The Federal Reserve has already resolved to deliver another 75-basis-point interest rate hike
- Oil also came under pressure from hopes of an easing of Europe's gas supply crisis.
Oil fell by more than two per cent on Monday, pressured by expectations of weaker global demand and by U.S. dollar strength ahead of possible large increases to interest rates, though supply worries limited the decline.
Central banks around the world are certain to increase borrowing costs to tame high inflation this week and there is some risk of a blowout 1 percentage point rise by the U.S. Federal Reserve.
The Federal Reserve has already resolved to deliver another 75-basis-point interest rate hike and likely hold its policy rate steady for an extended period once it eventually peaks.
If realized, that would take the policy rate to the 3-3.25 per cent target range, the highest since early 2008, before the worst of the global financial crisis.
"The upcoming Fed meeting and the strong dollar are keeping a lid on prices," said Tamas Varga of oil broker PVM.
Brent crude for November delivery fell $2.29, or 2.5 per cent, to $89.06 a barrel by 1135 GMT. U.S. West Texas Intermediate (WTI) for October dropped $1.87, or 2.2 per cent to $83.24.
A British public holiday for the funeral of Queen Elizabeth was expected to limit activity on Monday.
Oil also came under pressure from hopes of an easing of Europe's gas supply crisis.
German buyers reserved capacity to receive Russian gas via the shut Nord Stream 1 pipeline, but this was later revised and no gas has been flowing.
Crude has soared this year, with the Brent benchmark coming close to its record high of $147 in March after Russia's invasion of Ukraine exacerbated supply concerns.
Worries about weaker economic growth and demand have since pushed prices lower.
The U.S. dollar stayed near a two-decade high ahead of this week's decisions by the Fed and other central banks.
A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil and other risk assets.
Both benchmarks suffered their third consecutive negative week last week, and this selling has continued Monday as traders fretted that aggressive monetary tightening by a number of central banks, the U.S. Federal Reserve, in particular, will add impetus to the already slowing economic growth.
Both the World Bank and the International Monetary Fund warned last week of an impending global economic slowdown in late 2022 and 2023.
Over the weekend, influential investment bank Goldman Sachs cut its U.S. economic growth estimates for 2023, saying the country’s gross domestic product will increase 1.1 per cent, compared with a forecast of 1.5 per cent previously.
The situation is even worse in Europe, with the Bundesbank saying Monday that hints of a recession in Europe’s largest economy are becoming more evident after a significant deterioration in supply conditions.
Yet the European Central Bank lifted its interest rates by a hefty 75 basis points last week, and the Bank of England, the Swiss National Bank and the Norges Bank are set to largely follow suit with hefty interest rate rises this week.
With Russian energy supplies largely shut off from Europe, European governments outlined new measures on Monday to cope with potential energy shortages this winter.
Spanish Industry Minister Reyes Maroto said that making energy-intensive companies close down during consumption peaks is an option on the table this winter if required.
Adding to the pressure has been the strength of the U.S. dollar, with the dollar index, which tracks the greenback against a basket of six other currencies, climbing near to levels not seen for 20 years.
The projection for 2022 was left unchanged at zero per cent.
Meanwhile, top oil exporter Saudi Arabia's July crude oil exports gained for a second-straight month to their highest in more than two years, data from the Joint Organisation Data Initiative (JODI) showed on Monday.
Saudi Arabia's exports rose 2.5 per cent to 7.38 million barrels per day (bpd) in July - the highest since April 2020 - from 7.20 million bpd in June.
The country had raised its July crude prices for Asian buyers to higher-than-expected levels amid concerns about tight supply and expectations of strong demand in summer. It had also raised its OSP for European and Mediterranean buyers but kept U.S. differentials unchanged.
Saudi Arabia was India's third supplier in July and also retained its spot as the biggest exporter to China during the first half of the year
Saudi production also climbed to its highest in more than two years to 10.815 million bpd from 10.646 million bpd in the previous month.
Saudi's domestic crude refinery throughput fell about three per cent to 2.763 million bpd in July, while oil products exports stood at 1.429 mln bpd.
Meanwhile, an internal document showed, that the Organization of the Petroleum Exporting Countries and allies (OPEC+) fell short of its oil production target by 2.892 million bpd in July.
Earlier this month, OPEC and its allies led by Russia agreed on a small oil production cut to bolster prices that have slid on fears of an economic slowdown.
Monthly export figures are provided by Riyadh and other OPEC members to JODI, which publishes them on its website.