Oil prices fell sharply on Tuesday, with both U.S. and global benchmarks losing more than 1% as concerns over the Federal Reserve's interest rate outlook stoked fears of weakening demand. The decline extends losses from Monday's session, with investors growing increasingly pessimistic about the prospects for crude oil consumption amid the potential for lingering U.S. inflation to keep interest rates higher for longer.

West Texas Intermediate (WTI) crude futures for June, set to expire on Tuesday, slipped by $1.49, or 1.8%, to $78.31 a barrel. The more active July contract lost $1.55, or 1.9%, to $77.75. Meanwhile, Brent crude futures fell by $1.54, or 1.8%, to $82.17 a barrel by 1210 GMT. Year-to-date, U.S. crude oil is up 9.3%, while the global benchmark has gained 6.76%.

The market's downward trajectory was largely influenced by comments from Federal Reserve officials, who indicated that they were awaiting more signs of slowing inflation before considering interest rate cuts. Fed Vice Chair Philip Jefferson stated that it was too early to tell whether the inflation slowdown is long-lasting, while Vice Chair Michael Barr emphasized that restrictive policy needs more time to take effect. Atlanta Fed President Raphael Bostic added that it will "take a while" for the central bank to be confident that a price growth slowdown is sustainable.

The Fed officials' remarks pointed to interest rates remaining higher for longer than markets had previously anticipated, which has implications for the oil market. Higher borrowing costs tie up funds and can hinder economic growth, ultimately leading to reduced demand for crude oil.

"Fears of weaker demand led to selling as the prospect of a Fed rate cut became more distant," said analyst Toshitaka Tazawa at Fujitomi Securities.

Despite the market's focus on the Fed's rate outlook, it appeared largely unaffected by political uncertainty in two major oil-producing countries. Iranian President Ebrahim Raisi, a hardliner and potential successor to Supreme Leader Ayatollah Ali Khamenei, died in a helicopter crash on Sunday. Separately, Saudi Arabia's Crown Prince Mohammed Bin Salman deferred a trip to Japan due to the health of his father, the king.

Vandana Hari, founder of Vanda Insights, noted that "the (oil) complex continues to lack major bullish or bearish influences to nudge prices out of the current narrow band, which has become entrenched since the start of May."

Investors are now turning their attention to the upcoming meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, scheduled for June 1. The cartel will set output policy and decide whether to extend some members' voluntary supply cuts of 2.2 million barrels per day. According to people with knowledge of the matter, OPEC+ could extend some voluntary cuts if demand fails to pick up.

John Evans, an analyst at oil broker PVM, stated that the market will increasingly focus on how OPEC+ may react to the current oil price action as the meeting draws closer. The current softness in the market likely does not support bringing OPEC supply back on the market, Evans added.

Meanwhile, the structure of the Brent contract is weakening, indicating a softer market and strong supply. The front-month Brent contract's premium to the second-month contract narrowed to 10 cents, its weakest since January.