Oil falls as demand fears overtake OPEC-led rally - Reuters

• Summary

• OPEC+ makes 100,000 bpd output cut for October
• EU's Borrell less optimistic of quick Iran nuclear deal revival
• U.S. holiday delays weekly inventory reports

NEW YORK, Sept 6 (Reuters) - Oil prices sank on Tuesday after a two-day rally as concern returned about weaker demand and the prospect of more interest rate hikes trumped support from OPEC+'s first output target cut since 2020.

Brent crude was down $3.26, or 3.4%, to $92.48 at 11:27 a.m. EDT (1527 GMT). U.S. West Texas Intermediate (WTI) fell from Monday's trading to $86.37, down 50 cents or 0.6% from Friday's close.

Technical factors, including that the U.S. benchmark has been trading since Sunday without settlement due to the Labor Day holiday, helped support WTI over Brent. WTI still held close to multi-month lows.

Extended COVID-19 lockdowns in Chengdu, China, have added to worries that high inflation and interest rate hikes will hit demand. The European Central Bank is widely expected to lift rates sharply when it meets on Thursday. read more

"The OPEC+ news is now in the market and the focus has temporarily shifted to economic and inflationary concerns amongst which the two relevant factors are the extended COVID lockdowns in China and Thursday's ECB rate decision," said Tamas Varga of oil broker PVM.

"Undoubtedly, they raise fears of demand destruction."

A stronger U.S. dollar, which was up about 0.6% on better-than-expected American services industry data, also put pressure on oil prices. read more

The reading on services sector activity fed into expectations that the U.S. Federal Reserve will keep raising interest rates, which could trigger a recession and bring down fuel demand. read more

On the supply side, signs that an agreement to resurrect Iran's nuclear deal with world powers was less imminent challenged limited crude prices by reducing the odds that OPEC+ would move forward with its output reduction plan, said Bob Yawger, director of energy futures at Mizuho.

The European Union's foreign policy chief said on Monday he was less hopeful about a quick revival of the deal.

"You might not get an OPEC production cut if the Iranians don't bring barrels to the market," Yawger said.

The Organization of Petroleum Exporting Countries and allies led by Russia, known as OPEC+, decided on Monday to cut their October output target by 100,000 barrels per day (bpd). Prices rose on Friday ahead of the meeting and after the decision. read more

As a result of the Labor Day holiday, weekly U.S. inventory reports from the American Petroleum Institute and Energy Information Administration will be released on Wednesday and Thursday, a day later than usual.

Additional reporting by Alex Lawler in London, Sonali Paul in Melbourne and Isabel Kua in Singapore Editing by Jason Neely, Mark Potter and Jonathan Oatis

Our Standards: The Thomson Reuters Trust Principles.

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