Oil prices extended losses on Tuesday after weak US and Chinese data reinforced recession expectations with signs that Iran is moving towards a nuclear deal adding to the downward pressure.

Abadan oil refinery in southwest Iran pictured from Iraqi side of Shatt al Arab south of Basra on September 21, 2019.
Abadan oil refinery in southwest Iran pictured from Iraqi side of Shatt al Arab south of Basra on September 21, 2019. (Essam Al-Sudani / Reuters)

Oil prices have extended losses after weak US and Chinese data spurred fresh concerns about a potential global recession that could hit energy demand.

Brent crude futures fell 90 cents, or 1 percent, to $94.20 a barrel by 00:03 GMT. WTI crude futures fell 81 cents, or 0.9 percent, to $88.60 a barrel.

Oil futures fell about 3 percent during the previous session as demand expectations are lowered in light of a string of soft economic indicators in major economies.

Signs that Iran is moving towards a nuclear deal added to the downward pressure on prices, with an agreement seen allowing the country to restart sales into the world market.

Analysts said Tehran could provide 2.5 million barrels a day, giving a much-needed shot in the arm to supplies, which have been hammered by sanctions on Russia in response to its attacks on Ukraine.

Libya has also boosted production, helping prices drop to six-month lows and wiping out the gains seen after the Ukraine conflict started.

But analysts warned that there might still be some way to go on an Iran agreement owing to upcoming US elections.

"A deal with Iran would likely not be popular with US voters and so is hard to envisage before the November mid-terms," said National Australia Bank's Ray Attrill.

"Markets are currently prone to optimism, though, and hopes for a deal... have added to downward pressure on oil prices."

Iran responded to the European Union's "final" draft text to save a 2015 nuclear deal on Monday, an EU official said, but provided no details on Iran's response to the text. The Iranian foreign minister called on the United States to show flexibility to resolve three remaining issues.

READ MORE: Libya 'confirms' its oil production is back to pre-blockade levels

Disappointing China data

China's central bank cut lending rates to revive demand as data showed the economy slowing unexpectedly in July, with factory and retail activity squeezed by Beijing's zero-Covid policy and a property crisis.

China's fuel product exports will rebound in August to near the highest for the year so far after Beijing issued more quotas in June and July, although broader curbs are set to cap shipments at seven-year lows for 2022, analysts and traders said.

In the United States, total output in the major US shale oil basins will rise to 9.049 million bpd in September, the highest since March 2020, the U.S. Energy Information Administration (EIA) said in its productivity report on Monday.

Market participants awaited industry data on US crude stockpiles due later on Tuesday. Oil and gasoline stockpiles likely fell last week, while distillate inventories rose, a preliminary Reuters poll showed on Monday.

Hopes of cooling inflation

With surging oil prices a key driver of inflation to multi-decade highs around the world, the drop has fanned hopes that the headline figure could begin to come down.

That has led to speculation that central bank chiefs could lift rates at a slower pace, and then think about pivoting monetary policy to cuts as early as next year.

The prospect of a less painful hiking campaign has sparked a rally in equities from their June lows.

And on Tuesday, Asia built on Wall Street's upbeat performance.

Hong Kong and Shanghai rose after Beijing cut rates on Monday as the world's number two economy struggles to recover from a plunge in activity caused by extended Covid lockdowns.

Sydney, Seoul, Taipei, Manila, Jakarta and Wellington were also up, though Tokyo was flat and Singapore dipped.

Still, analysts warned that while equities are enjoying a bounce, the economic outlook could keep them subdued or even fall back again.

"The risk of the markets going below the June lows is quite high," Shane Oliver, at AMP Services, told Bloomberg Television. The weak data presage "weaker earnings growth ahead in the US", he added.

READ MORE: UN chief blasts oil firms profiting from energy crisis

Source: Reuters