Oil fell for a second day as broader markets tumbled on inflation concerns.

Analysts, investors are growing worried about inflation, expert says

Oil plunged to the lowest in three weeks alongside a broader market decline with traders also concerned about growing supply from the U.S. and Iran.

Futures in New York tumbled 3.3 per cent on Wednesday as increasing inflation fears rattled broader markets. Equities declined and the dollar strengthened, making raw materials priced in the currency less attractive.

Meanwhile, in the oil market, a U.S. government report showed domestic crude stockpiles surged by the most since mid-March last week. Traders are also following talks between world powers in Vienna around reviving an agreement that would remove U.S. sanctions on Iran’s crude exports. A top European Union official said the U.S. and Iran are close to a deal.

”There’s been building concern around inflation in the commodities sphere, as well as the economy more generally, and the possibility that the Fed will act,” said Michael Lynch, president of Strategic Energy & Economic Research. “We’ve had such a bull market based on monetary stimulus, so now if that’s pulled back,” prices could weaken.

Crude benchmarks have swung with those of wider risky assets in recent days with the COVID-19 crisis in India also pointing to weaker demand. The second wave of the pandemic has lowered Indian Oil Corp.’s sales of gasoline and diesel by 15 to 20 per cent. The United States’ biggest refiner also sliced operating rates at plants by more than 80 per cent. However, consumption has shown marked improvement in the U.S. and Europe.

Meanwhile, Enrique Mora, the EU official in charge of coordinating diplomacy in Vienna, said he expects all parties to return to the 2015 agreement before Iran’s presidential elections on June 18. Iran has already been bringing back output, and said it will soon export oil from a new port, which would allow the country to bypass the Strait of Hormuz.

“Expectations of pending tightness may be dissipating,” Bart Melek, head of commodity strategy at TD Securities, said in a note.