Brent crude futures for October settlement fell $2.45, or 2.33 percent, to $102.64 a barrel by 1022 GMT, after climbing 4.1 percent on Monday, the biggest increase in more than a month.
The October contract expires on Wednesday and the more active November contract was at $101.12 a barrel, down 1.76 percent.
U.S. West Texas Intermediate crude was at $95.46 a barrel, down $1.55, or 1.6 percent, following a 4.2 percent rise in the previous session.
Inflation is near double-digit territory in many of the world’s biggest economies, a level not seen in close to a half century. This could prompt central banks in the United States and Europe to resort to more aggressive interest rate hikes that could curtail economic growth and weigh on fuel demand.
“The economy will continue to remain slow with the Fed’s aggressive monetary policies. Investors are now waiting for the monthly employment data on Friday,” said Kunal Sawhney, chief executive officer, Kalkine Group.
Prices took a tumble after comments from Iraq’s state-owned marketer SOMO that the country’s oil exports are unaffected by unrest, UBS analyst Giovanni Staunovo said.
Baghdad seeing its worst fighting for years as clashes between Shi’ite Muslim groups spill into a second day.
SOMO also said on Tuesday it can redirect more oil to Europe if required.
The market awaits the upcoming meeting of the Organization of the Petroleum Exporting Countries and allies such as Russia, known as OPEC+, on Sept. 5.
Saudi Arabia last week raised the possibility of production cuts from OPEC+.
“Possible reduction in OPEC+ production is the reason why the oil market has thumbed its nose at weakening equities and the strong dollar,” said Tamas Varga of oil broker PVM.
Meanwhile, the American Petroleum Institute, an industry group, is due to release data on U.S. crude inventories at 4:30 p.m. EDT (2030 GMT) on Tuesday.
U.S. crude oil stockpiles likely fell 600,000 barrels in the week to Aug. 26, with distillates and gasoline inventories also seen down, a preliminary Reuters poll showed on Monday.
By Rowena Edwards