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Oil prices settled lower Tue, as a stronger dollar and fears about supply outstripping demand remain front and centre, offsetting a potential supply risk from ongoing tensions in the Middle East.

The Brent contract settled 1.1% lower at USD77.20,while WTI crude futures felled 1% to USD72.32.

Fears of a potential escalation in the Israel-Hamas conflict came back into play after the U.S. held Iran responsible for an attack on U.S. vessels in the Red Sea by Houthi forces. But traders remained wary of pricing too high a risk premium into oil over the conflict, given that it so far had minimal impact on Middle Eastern oil supplies.

The dollar rose, weighing on oil prices, despite falling Treasury yields fell amid data pointing to weakness in the labour market as labour demand fell to a two-year low.

The signs of a weakening labour market in the U.S come ahead of nonfarm payrolls data, due this Fri.

Adding to global growth concerns, ratings agency Moody's cut its outlook on China's government credit ratings to negative from stable earlier Tue, in the latest sign of mounting global concern over a deepening property crisis in the world's 2nd-largest economy.

Sentiment on oil prices continued to be soured concerns that OPEC+ agreements on Nov. 30 to take 2.2 million bpd offline early next year may not be enough to curb a potential supply surplus.

Russia indicated the cuts agreed by the OPEC+ group will take time to kick in, with the market wary that Moscow may try to talk up the need for cuts while producing as much as possible to fund the ongoing war in Ukraine.