Oil fell due to a U.S. plan to sell more crude from its reserves, offsetting gains from Russian output cuts and rising demand in China.
West Texas Intermediate fell to $79 a barrel after a volatile session on Monday. The U.S. is looking to sell 26 million barrels from the Strategic Petroleum Reserve in accordance with a budget mandate enacted in 2015.
The drop in crude oil prices came ahead of the release of important U.S. inflation data, which will shape investor expectations about how high the Federal Reserve will raise interest rates to bring inflation back under control.
Oil has had a choppy start to 2023, as traders are trying to assess the demand impact of China's re-opening, the supply curbs announced by Moscow amid the war in Ukraine, as well as persistent fears that tighter U.S. monetary policy could trigger a recession. At the same time, according to the UAE Energy Minister, the Organization of Petroleum Exporting Countries and its allies insist on production cuts amid concerns about oil supplies.
More US crude sales should not have a protracted impact on prices, according to Tamas Varga, an analyst at PVM Oil Associates Ltd. "US inflation data will give some food for thought to investors. If it comes in worse than expected, the market will expect rates to be higher for longer and that will push equities lower and therefore oil lower."