Brent crude futures for October settlement were down $7.12, or 6.8%, at $97.97 a barrel by 12:20 p.m. EDT (1620 GMT) after touching a session low of $97.91 a barrel.
The October contract expires on Wednesday and the more active November contract was at $97.10, down 5.7%.
U.S. West Texas Intermediate crude dropped by $6.10, or 6.3%, to $90.93.
Inflation is near double-digit territory in many of the world’s biggest economies. This could prompt central banks in the United States and Europe to resort to more aggressive interest rate increases, which could slow economic growth and weigh on fuel demand.
The European Central Bank should include a 75 basis-point interest rate hike among its options for the September policy meeting given exceptionally high inflation, Estonian policymaker Madis Muller said on Tuesday.
German inflation rose to its highest level in almost 50 years in August, beating a high set only three months earlier, data showed. Hungary’s central bank raised its base rate by 100 basis points to 11.75%.
Bets on another oversized Fed rate hike also pushed up the dollar. A stronger greenback is generally bearish as it makes it more expensive for buyers with other currencies in the dollar-denominated oil market.
Prices tumbled after comments from Iraq’s state-owned marketer SOMO that the country’s oil exports are unaffected by unrest, said UBS analyst Giovanni Staunovo.
Baghdad’s worst fighting in years between Shi’ite Muslim groups continued for a second day.
Still, SOMO said it can redirect more oil to Europe if required.
Prices felt more pressure when Russia’s fastest-growing oil producer, Gazprom Neft, said it plans to double oil production at its Zhagrin field in Western Siberia to more than 110,000 barrels per day.
Investors will watch the meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known collectively as OPEC+, on Sept. 5.
Saudi Arabia last week raised the possibility of production cuts from OPEC+, which sources said could coincide with a boost in supply from Iran should it clinch a nuclear deal with the West.
With most producers already operating at or above capacity and growing signs that the global economy may be slowing, some reduction of supply is looking increasingly likely in the coming months, said Matt Weller, head of research at FOREX.com and City Index.
The American Petroleum Institute is due to release data on U.S. crude inventories at 4:30 p.m. EDT (2030 GMT) on Tuesday.
U.S. crude oil stockpiles are likely to have fallen in the week to Aug. 26, a preliminary Reuters poll showed on Monday.