By Laura Sanicola
(Reuters) -Oil prices reversed early gains and settled lower on Tuesday, as investors worried about lower consumer confidence and braced for another 20 million barrels of crude oil to be released from the U.S Strategic Petroleum Reserve.
Brent crude futures fell 75 cents, or 0.7%, to settle at $104.40. U.S. West Texas Intermediate (WTI) crude fell $1.72 cents, or 1.8%, to $94.98.
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 recovery in demand that cratered early in the pandemic.
In late March, the administration said it would release a record 1 million barrels 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 on nagging worries about inflation and rising interest rates, a Conference Board survey showed. It also showed consumers were less optimistic about the labor market.
Prices got an early boost from news that Russia was tightening its gas squeeze on Europe. On Monday, Gazprom said supplies through the Nord Stream 1 pipeline to Germany would drop to only 20% of capacity.
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.
European Union energy ministers 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 Western sanctions and payment disputes with Russia since the Feb. 24 invasion of Ukraine, which Moscow calls a "special military operation".
The EU has repeatedly accused Russia of energy blackmail. The Kremlin has blamed shortfalls on maintenance issues and sanctions.
High fuel prices have already begun to curb demand, and investors are bracing for higher U.S. interest rates. The Federal Reserve is expected to raise rates by 75 basis points at the conclusion of its policy meeting on Wednesday.
"Volatility will likely be stepped up as this week progresses with tomorrow’s Fed decision and associated comments likely determining the course of oil trade through the rest of this week," said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.
(Additional reporting by Ahmad Ghaddar in London, Yuka Obayashi in Tokyo and Muyu Xu in SingaporeEditing by Kirsten Donovan, David Goodman, Marguerita Choy and David Gregorio)