Oil weakened on Wednesday, with Brent crude falling close to its lowest this year, pressured by concern about recession and easing fears that a Western cap on Russian oil prices would significantly curb supply.
Warnings from big U.S. banks about a likely recession next year weighed, and supported the U.S. dollar. A stronger dollar makes oil more expensive for holders of other currencies and tends to dampen appetite for risk assets.
Brent crude fell $1.05, or 1.3%, to $78.30 a barrel by 1020 GMT. It touched $77.74 earlier, the lowest since Jan. 3. U.S. crude was down $1.24 or 1.7% to $73.01 and touched $72.25, the lowest since late December.
"There's still tons of uncertainty in the markets today," said Claudio Galimberti, senior vice-president at Rystad Energy, adding crude production in Russia may not drop as much as expected earlier.
Brent settled below $80 on Tuesday for the only the second time in 2022 and has unwound the year's gains, which had lifted prices close to the all-time high of $147 in March after Russia invaded Ukraine.
Fears were easing that the price cap on Russian crude could cause a supply shock. Russia, the Vedomosti daily reported on Wednesday, is considering options including banning oil sales to some countries to counter the cap imposed by Western powers.
"The geopolitical risk premium has all but disappeared, but inflation concerns have not," oil broker PVM said. "Clearly, investors are not worried the least about any potential supply shortage that might be the result of the price cap and the EU ban on Russian oil sales."
Some support for prices came from hopes of a Chinese demand recovery.
China announced on Wednesday the most sweeping changes to its anti-COVID regime since the pandemic began, loosening rules that curbed the spread of the virus but hobbled the world's second largest economy and sparked protests.
Also lending support was Tuesday's report from industry group the American Petroleum Institute which, according to market sources, said that crude stocks fell by around 6.4 million barrels.