Brent crude oil futures were at $66.88 per barrel at 0446 GMT, down 74 cents, or 1.1 percent, from the previous close. That was more than $4 below their high-point for 2018, hit last month.
U.S. West Texas Intermediate (WTI) crude futures were at $63.38 a barrel, down 77 cents, or 1.2 percent, from their last settlement and more than $3 off their 2018-high.
Financial markets went into a tailspin on Monday after a sharp rise in U.S. bond yields that raised alarms over rising inflation and potentially higher interest rates.
The Dow Jones Industrial Average’s 4.6 percent loss on Monday was its largest in percentage terms since August 2011, and the day’s 1,175 point loss was its biggest ever in absolute terms. The index was briefly down more than 6 percent.
U.S. S&P 500 futures tumbled 2.5 percent to 4-month lows in Asian trade on Tuesday, as the sell-off triggered by worries about inflation showed no sign of abating.
“Suddenly, inflation has become one of the most-talked about issues in markets,” U.S. bank J.P. Morgan said in a note to clients.
However, the correction in oil is also being driven by fundamentals, traders said.
Despite efforts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia to withhold production since January last year in order to tighten the market and prop up prices, crude supplies remain relatively ample.
That’s largely due to soaring U.S. shale oil production, which has jumped by almost 18 percent since mid-2016 to 10 million barrels per day (bpd) - surpassing output by leading exporter Saudi Arabia.
Only Russia produces more, averaging 10.98 million bpd in 2017.
What’s more, there are indications that U.S. oil output will rise further: the amount of rigs drilling for oil fields rose to 765 by late January, easily more than double the 316 that were in operation during 2016’s production lull.
There is also a seasonal downturn to demand, as many refineries shut for maintenance following the upcoming end to the peak-consumption winter heating season in the northern hemisphere.
The largest U.S. refinery, Motiva Enterprises’ 603,000 bpd Port Arthur facility in Texas, began a planned one-month overhaul on Monday of its key crude oil processing unit.
Consequently, hedge fund managers have cut their bullish exposure to petroleum for the first time in six weeks.
Despite this, overall oil demand remains healthy, with U.S. bank Goldman Sachs estimating 2018 growth of 1.8 million bpd, with 40 percent of this coming from China and India alone.
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