Brent crude futures fell $1.08, or 1.3%, to $85.19 per barrel by 0341 GMT, while U.S. West Texas Intermediate (WTI) crude futures were down 99 cents, or 1.3%, at $77.51 per barrel.
The dollar hit a fresh two-decade peak against a basket of currencies on the back of rising Treasury yields. A strong dollar reduces demand for oil by making it more expensive for buyers using other currencies.
Asian share markets slid as surging borrowing costs stoked fears of a global recession, spooking investors into the arms of the safe-haven dollar.
"With Asian markets tanking due to the surge in bond yields, demand outlooks are darkened amid a possible nearing economic recession," said Tina Teng, an analyst at CMC Markets.
"Traders' focus is not on the supply issues right now as the bond market's turmoil sunk risk assets, along with a stubbornly high U.S. dollar, which pressured oil prices," Teng added.
U.S. crude oil stocks rose by about 4.2 million barrels for the week ended Sept. 23, while gasoline inventories fell about 1 million barrels, according to market sources on Tuesday, citing figures from industry group the American Petroleum Institute.
Distillate stocks rose by about 438,000 barrels, according to the sources, who spoke on condition of anonymity.
The report comes ahead of official Energy Information Administration data due on Wednesday at 4:30 p.m. EDT.
Goldman Sachs cut its 2023 oil price forecast on Tuesday, due to expectations of weaker demand and a stronger U.S. dollar, but said global supply disappointments only reinforced its long-term bullish outlook.
Producers began returning workers to offshore oil platforms after shutting in output ahead of Hurricane Ian, which entered the U.S. Gulf of Mexico on Tuesday and is forecast to become a dangerous Category 4 storm over the warm waters of the Gulf.
About 190,000 barrels per day of oil production, or 11% of the Gulf's total were shut-in, according to offshore regulator the Bureau of Safety and Environmental Enforcement (BSEE).
Producers lost 184 million cubic feet of natural gas, or nearly 9% of daily output. Personnel were evacuated from 14 production platforms and rigs, the BSEE said.
Ian is the first hurricane this year to disrupt oil and gas production in the U.S. Gulf of Mexico, which produces about 15% of the United States' crude oil and 5% of dry natural gas.
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