Model of Oil barrels are seen in front of rising stock graph in this illustration, July 24, 2022.
Model of Oil barrels are seen in front of rising stock graph in this illustration, July 24, 2022. Reuters / DADO RUVIC

Oil prices fell on Tuesday, paring gains made earlier in the session on lower consumer confidence and the expectation of another 20 million barrels of crude oil to be released from the U.S Strategic Petroleum Reserve.

Brent crude futures fell 35 cents, or 0.3%, to $104.80 a barrel by 12:57 p.m. EDT (1657 GMT).

U.S. West Texas Intermediate (WTI) crude fell 92 cents, or 1%, to $95.78.

The Biden administration said it will sell an additional 20 million barrels of SPR crude oil as part of a previous plan to tap the facility to calm oil prices boosted by Russia's invasion of Ukraine in February and as demand recovers from the COVID-19 pandemic.

The administration said in late March it would release a record 1 million barrels of per day of SPR crude oil for six months.

"The market reacts to these SPR announcement and has helped keep a lid on things, to an extent," said John Kilduff, partner at Again Capital LLC in New York.

U.S. consumer confidence dropped to nearly a 1-1/2-year low in July amid persistent worries about higher inflation and rising interest rates, pointing to slower economic growth at the start of the third quarter, according to a survey from the Conference Board.

The survey also showed consumers were less optimistic in their assessment of the labor market.

The market was supported earlier in the session on news that Russia was tightening its gas squeeze on Europe on Monday as Gazprom said supplies through the Nord Stream 1 pipeline to Germany would drop to only 20% of capacity.

The cut in supplies will leave countries unable to meet their goals to refill natural gas storage ahead of the winter. Germany, Europe's biggest economy, may have to ration gas to industry to keep its citizens warm during the winter months.

"The announcement revived fears that Russia, despite its cynical denial, will not shy away from using its energy as a weapon in order to gain concessions in its war against Ukraine and ... could probably expect short-term success," said Tamas Varga at oil brokerage PVM.

The European Union has repeatedly accused Russia of resorting to energy blackmail, while the Kremlin says shortfalls have been caused by maintenance issues and Western sanctions.

EU energy ministers on Tuesday approved a proposal for all EU countries to cut gas use voluntarily by 15% from August to March.

Europe's crude, oil product and gas supplies have been disrupted by a combination of Western sanctions and payment disputes with Russia since the Feb. 24 invasion of Ukraine, which Moscow calls a "special military operation".

Still, falling demand because of recent high crude and fuel prices and the expectation of an increase in interest rates in the United States have pressured prices.

The U.S. central bank is widely expected to raise interest rates by 75 basis points at the conclusion of its policy meeting on Wednesday. That increase could reduce economic activity and curb fuel demand.

Morgan Stanley said that 77% of global central banks have increased rates in the past six months, "making this the most-synchronised cycle of rate hikes since the early 1980s".