Oil prices fell more than 2% on Tuesday on worries that new clampdowns on businesses to stem surging U.S. coronavirus cases could threaten fuel demand recovery and expectations that OPEC+ might ease output cuts from August in an upcoming meeting.
U.S. West Texas Intermediate (WTI) crude futures slid 96 cents, or 2.39%, to $39.14 a barrel by 0443 GMT, while Brent crude futures fell 88 cents, or 2.06% to $41.84.
Both benchmark contracts lost just over 1% on Monday.
California's governor on Monday ordered bars to shut and restaurants, movie theatres, zoos and museums to cease indoor operations as coronavirus cases and hospitalizations soared.
The most populous state's two largest school districts, in Los Angeles and San Diego, also said they would teach only online when classes resume in August.
California's moves follow the recent reinstatement of some restrictions in other states, such as Florida and Texas.
"With the California soft lockdown now framing the picture, July could be an even more challenging month for oil than expected with even more demand woes emanating from coronavirus-linked uncertainty," AxiCorp market strategist Stephen Innes said in a note.
The market will be watching the next move from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, whose Joint Ministerial Monitoring Committee will meet on Wednesday to recommend the next level of cuts.
Under the existing agreement, OPEC+ is set to taper its record supply cut of 9.7 million barrels per day (bpd) to 7.7 million bpd from August through December.
The oil market is getting closer to balance as demand gradually rises, OPEC's secretary general said on Monday.
Citi analysts said implementing a 2 million bpd increase in output from August could weigh on the market given demand uncertainties, adding to risks from a potential for increased Libyan output, a return of 20% to 30% of curbed North American production, and an end to China's crude buying spree.
China's June crude oil imports hit records on both monthly and daily bases, data showed on Tuesday.
The market will also be closely watching data on fuel consumption due later on Tuesday from the American Petroleum Institute industry group and on Wednesday from the U.S. Energy Information Administration.
Analysts estimate U.S. gasoline stockpiles fell by 900,000 barrels and crude oil inventories by 2.3 million barrels in the week to July 10, a preliminary Reuters poll showed.
Separately, Yemeni Houthi forces hit a large oil facility in southern Saudi Arabia in drone and missile attacks overnight, a Houthi military spokesman said late on Monday. There has been no Saudi confirmation of whether anything was hit.
(Reporting by Sonali Paul in Melbourne and Shu Zhang in Singapore; Editing by Richard Pullin and Tom Hogue)
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