Oil prices moved little in Asian trade on Friday after falling sharply from 2023 highs on some profit taking, although the prospect of tighter supplies still put prices on course for their fourth straight month of gains. 

Brent oil futures fell from a 10-month peak, while West Texas Intermediate (WTI) futures came off a 13-month high on Thursday amid flashing overbought signals, as sentiment was battered by rising Treasury yields and growing fears of higher interest rates.

An ongoing sell-off in the bond market, which is usually regarded as a precursor to a recession, also kept sentiment largely frayed, spurring some investors to lock-in recent profits in oil markets. 

Brent steadied at $93.06 a barrel, while WTI futures were flat at $91.71 a barrel by 21:02 ET (01:02 GMT). Both contracts lost nearly $2 each on Thursday. 

Oil set for fourth straight month of gains in Sept

But both Brent and WTI were set to rise between 7% and 10% in September, their fourth straight month of gains.

Oil has been on a tear over the past four months following deep supply cuts from Saudi Arabia and Russia, which are expected to substantially tighten crude markets in the remainder of the year.

Recent inventory data showed that U.S. supplies also remained tight, even as fuel demand appeared to be cooling with the end of the summer season. U.S. oil exports have risen sharply in recent months, likely to fill part of the supply gap caused by the Russian and Saudi cuts.

Brent and WTI prices are up between $20 to $23 a barrel since early-June, as markets bet that tighter supplies will largely offset any slowing in demand.

But analysts have questioned the sustainability of this trade in recent sessions, especially amid growing concerns that higher interest rates will weigh heavily on economic growth in the coming months.

Oil pullback watched as market sentiment worsens 

Rising oil prices have fueled renewed concerns over an energy-driven resurgence in inflation, which could invite more hawkish measures from major central banks. The Federal Reserve had flagged this in its meeting last week, with the bank also signaling that interest rates will remain higher for longer.

This messaging brewed concerns that higher interest rates will weigh on economic activity in the coming year, and potentially dent crude demand.

While a final reading on U.S. second-quarter GDP showed continued resilience in the world’s largest economy, growth may worsen later this year amid continued pressure from higher rates.

Markets were also growing more fearful of a U.S. government shutdown, which is expected to impair economic activity. Lawmakers have shown little progress towards the passing of a spending bill by a September 30 deadline, which is largely expected to result in a shutdown through early-October. 

The negative sentiment potentially sets up crude for more profit taking. Analysts at OANDA said the next support level for Brent was $87.75 a barrel, while WTI was at $84, indicating prices had the capacity for steep declines in the near-term.