Oil slipped as global recessionary concerns, tighter monetary policy and a stronger US dollar overshadowed supply issues.
West Texas Intermediate traded below $82 a barrel, after a two-day winning streak which saw futures gain 7%. Top central banks including the US Federal Reserve are set to keep tightening monetary policy, even if there are negative repercussions.
Despite being on track for a weekly gain, crude is still set for its first quarterly loss in more than two years as macroeconomic headwinds persist. The US currency has been strengthening, with a Bloomberg gauge of the greenback near a record high, adding to headwinds for dollar-denominated commodities.
Supply concerns remained at the fore, after US government data showed an unexpected decline in commercial oil stocks last week, signaling improving demand. Crude inventories contracted by 215,000 barrels, even as stockpiles at the storage hub at Cushing, Oklahoma, expanded. Gasoline stocks fell.
Record dollar spikes
The dollar rose to another record after the White House talked down the prospect of weakening the currency, while UK bonds surged after the Bank of England said it would buy long-dated government bonds in whatever quantities were needed to restore order to the market.
The yield on 30-year gilts plummeted by the most in data going back to 1996, erasing an earlier jump to the highest since 1998. The pound initially bounced before falling back amid mounting global criticism of Prime Minister Liz Truss's historic tax-cutting plan. Ten-year Treasury yields reversed lower after earlier rising to the highest since 2008.
US futures fell and European stocks extended declines as Citigroup Inc. strategists said investors are abandoning that region at levels last seen during the euro area debt crisis. Asian shares also dropped.
Natural gas
Meanwhile, natural gas prices in Europe surged after Russia said it may cut off supplies via Ukraine and the German Navy was deployed to investigate the suspected sabotage to the Nord Stream pipelines.
Putin moved to annex a large chunk of Ukrainian territory amid a string of military setbacks in its seven-month-old invasion.
BOE's move
The BOE's decision to announce unlimited and immediate purchases of long-dated bonds was prompted by fears that collateral calls as soon as Wednesday afternoon could trigger a further crash in gilts, according to a person familiar with policy makers' decision making.
The BOE said purchases will be up to Pound5 billion per operation and that it stands ready to purchase conventional gilts with a residual maturity of more than 20 years in the secondary market. It will also postpone the beginning of its quantitative tightening bond sales, due to begin on Monday.
Earlier, the International Monetary Fund called the unfunded tax cuts excessive and in need of revision, while Moody's Investors Service warned that it risks doing lasting damage to the nation's debt affordability.
Mohamed El-Erian, chief economic adviser at Allianz SE, said it means the Bank of England will need to raise interest rates by at least 100 basis points at its next meeting on Nov. 3.
Losses to other currencies
The dollar's rally brought losses to other currencies, including the euro and onshore yuan, which tumbled to its weakest level since 2008. A regulatory body guided by the People's Bank of China urged banks to protect the authority of the yuan fixing.
The yen remained near levels that have drawn intervention from Japan, spurring speculation it may intervene further, potentially funded by Treasuries sales.
"The fact we have such a strong increase in US yields is attracting flows into the US dollar," said Nanette Hechler-Fayd'herbe, chief investment officer of international wealth management for Credit Suisse Group AG. "As long as monetary and fiscal policy worldwide are really not coming to strengthen their own currencies, we should be anticipating a very strong dollar."
European Central Bank President Christine Lagarde said borrowing costs will be raised at the next "several meetings," with several Governing Council members favoring a 75 basis point hike in October.
