Oil prices retreated Tuesday on continuing worries about the extent of demand growth in the coming year, even amid escalating tensions in the oil-rich Middle East.

By 09:00 ET (14.00 GMT), the U.S. crude futures traded 0.9% lower at $76.13 a barrel and the Brent contract dropped 0.9% to $81.08 a barrel.

Demand concerns mount

Data released earlier Tuesday showed the eurozone narrowly avoided a technical recession in the fourth quarter, as gross domestic product in the region was flat in the fourth quarter against the previous three months.

However, while this figure will prevent some nasty headlines, it still emphasises the lack of growth in this important region, particularly as the dominant German economy shrank in the final three months of 2023.

In fact, German gross domestic product contracted by 0.3% in the fourth quarter compared to the previous quarter, making a technical recession for Europe's largest economy in the first quarter of 2024 likely.

This lack of economic activity in the eurozone is likely to weigh on demand for oil, particularly as China’s ailing real estate sector continues to weigh on the health of the second largest economy in the world, and the largest crude importer.

The Chinese economy grew 5.2% last year, according to official figures. However, strip out deflation, and nominal growth was just 4.2%, which excluding the pandemic-hit growth of 2.7% in 2020, is the lowest annual number since 1976.

Fed meeting in focus

In the U.S., the world’s largest consumer of crude, traders are keeping an eye on the latest two-day policy-setting by the Federal Reserve, which starts later in the session.

The Fed is widely expected to keep interest rates unchanged on Wednesday, but traders will be looking for clues as to when Fed officials think rate cuts are in order, as high interest rates weigh on economic activity.

On the supply side, the American Petroleum Institute is scheduled to provide its estimate of U.S. crude stockpiles later in the session, after last week’s hefty 6.7 million barrel decline following weather-related supply disruptions, with production in North Dakota, hit hard.

The Organisation of Petroleum Exporting Countries, and allies, known as OPEC+, is due to meet later this week, but a change of the group's oil policy for April is unlikely at this point.

Iranian exports vulnerable

Still, despite today’s weakness, the crude benchmarks retain underlying support as tensions remain fraught in the Middle East, with the U.S. vowing to take "all necessary actions" to defend its troops following a deadly drone attack in Jordan.

The Biden administration has accused Iran of backing the militants who committed the attack, while Tehran has denied involvement in the attack.

Still, it does raise concerns of a more direct confrontation between the two countries, with Iranian oil exports potentially vulnerable via potentially greater enforcement of sanctions.