Oil prices fall as economic outlook offsets tight supply

LONDON, Sept 26 (Reuters): Oil prices fell on Tuesday as a stronger US dollar compounded concerns that demand for fuel will be held back by major central banks keeping interest rates higher for longer than expected.
Brent crude futures were down 51 cents, or 0.55 per cent, at $92.78 a barrel at 1227 GMT, while US West Texas Intermediate crude futures were trading 47 cents lower, or 0.52 per cent, at $89.21.
Oil prices were mostly flat on Monday, after Russia softened its gasoline and diesel export ban.
"Fears of an economic recession may again dominate the oil market's movement due to surging U.S. bond yields following the Fed's hawkish stance last week," said Tina Teng, a market analyst at CMC Markets in Auckland.
The world's top central banks, the US Federal Reserve and the European Central Bank, have over recent days reiterated their commitment to fight inflation, signalling tight monetary policy may persist longer than previously anticipated. Higher interest rates slow economic growth, which curbs oil demand.
Meanwhile, the US dollar hit a 10-month high on Tuesday, as higher bond yields attracted investors towards the greenback.
As the major currency used for oil pricing, a stronger dollar typically weighs on oil demand as it becomes more expensive for importers relative to their local currency.
Rating agency Moody's said on Monday that a US government shutdown would harm the country's credit, a warning coming one month after Fitch downgraded the United States by one notch on the back of a debt ceiling crisis.
"The threat of US government shutdown and its potential impact on the country's credit rating can also be a factor in oil finding it increasingly challenging to provoke the magical $100/bbl target," said Tamas Varga, analyst at oil broker PVM.
The American Petroleum Institute will release weekly U.S. inventory data later on Tuesday. Analysts are expecting a 1.7 million barrel drop for the week to Sept. 22, a preliminary Reuters poll found.