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No market operates in a vacuum - including oil, no matter what the proponents of higher crude prices think.

Worries that inflation will rear its ugly head again to suppress demand in almost everything set off a wave of risk aversion on Mon that handed global markets an ominous start to the fourth quarter.

The dollar's surge to a new 10-month high added to the weight of commodities denominated in the U.S. currency. The dollar shot up as a number of policy-makers at the Fed hinted on Tue at another rate hike in either Nov or Dec to keep inflation under control and nearer to the central bank's 2% target from a current 3.7%.

On the crude oil front, WTI and Brent fell about 2% each, extending losses from Fri. The two crude benchmarks had risen nearly 30% in the third quarter, threatening a new round of chaos to economies in non-oil producing countries.

While Sep manufacturing data, via the PMI, improved in both the United States and Europe, economists saw that as more of a work-off on inventories of raw materials in hold. The concern is how the global economy would fare for the rest of 2023 if energy prices continue rising without control, adding an onerous burden to overheads.

"The damage that can be done to the economy by high oil prices is very real and it's completely delusional to think this is acceptable for the bulk of the world which does not produce oil but instead consumes it," said John Kilduff, partner at Again Capital.

Brent for the most-active Dec contract settled at USD90.71, down 1.6%. It plunged to USD90.36 earlier.

WTI for delivery in Nov settled at USD88.82 - below the key USD90 mark - after sliding 2.2%, on the day. It hit a three-week low of USD88.47 earlier.

On the brighter side of oil, OPEC+ is to meet on Wed. The proponents of higher crude prices are counting on OPEC+ to reignite the upward momentum held by the market over the past four months. But sources within OPEC+, speaking privately to media, said the alliance is unlikely to tweak production targets for Nov and Dec.

The Saudis and Russians pledged last month to cut at least 1.3 million bpd of their regular production until the end of the year, in what many believe was a bid to bring crude back to USD100 a barrel or more. U.S. crude went from lows of beneath USD64 a barrel in May to above USD95 in Sep, while Brent rallied from below USD72 to above USD97 in the same span.

At the same time, OPEC+ may have paid a different "price" for such action.

Asia's crude oil imports slipped for a second consecutive month in Sep as refinery maintenance trimmed demand and the impact of higher prices started to weigh, Reuters reported, citing LSEG data.

The world's top importing region saw arrivals of 24.95 million bpd in Sep, down from Aug's 25.22 million, according to LSEG.

Saudi Arabia and Russia are also anticipating an array of different challenges for the Oct-Dec stretch that could make a repeat of their third-quarter market performance difficult.

Notwithstanding the view that OPEC+ might not make changes to its production, pressure appears to be building on the Saudis and Russians to ease back on some of their output cuts in order to have adequate oil for cargoes scheduled for year-end delivery.

There is also the notion, especially among the Saudis, that they need to protect market share for their oil with the current high prices for a barrel that expose them to risk of under-cutting by their allies, including the Russians.

Already, India's imports of Saudi oil were at below 500,000 bpd in Sep - the lowest in almost a decade.

On China, ING's energy analysts observed in a note that while Chinese manufacturing PMI returned to expansion territory in Sep for the first time since Mar, "the Saudis have said that there is still concern over Chinese demand".

Official data on Saturday showed that China's factory activity expanded for the first time in six months in Sep, adding to a run of indicators suggesting the world's 2nd-largest economy has begun to stabilize.

However, a private-sector survey on Sun was less encouraging, showing the country's factory activity expanded at a slower pace in Sep.

Indeed, a durable recovery in China's economy is being delayed by a property slump, falling exports and high youth unemployment, raising fears of weaker fuel demand.

Thus, the Saudis might need to produce more in Oct - not the same of what they pumped in Sep and certainly not less - to keep China, India and other important customers happy.

In fact, crude shipments from Saudi ports likely rose between 300,000 and 400,000 bpd last month from Aug - despite their so-called "lollypop cut" of one million bpd. And the trend could continue.

The Saudis have also been quite restrained in adding to the Official Selling Price, or OSP, of their crude despite Brent's runaway rally, that market roundup showed. Saudi Arabia’s medium sour crude grades were hiked by USD0.10 per barrel each, moving Arab Light to a USD3.60 per barrel premium vs Oman/Dubai. The only Saudi crude grade that saw a notable increase in Oct was Arab Super Light, a very rare condensate-like grade that sees 1-2 cargoes per month, which rose by USD0.50 per barrel.

"In an environment like this, Saudi Aramco was expected to hike Asian prices by a solid margin," the OilPrice roundup said. "Surprisingly, the anticipated OSP increase did not happen."

"Overall, the lack of pricing ambition reflected wider worries about the health of Chinese demand into the remaining months of 2023, as well as significantly lower Indian nominations lately."

To Moscow's benefit, India has begun buying Russian urals crude at around USD80 per barrel - markedly higher than the USD60 price cap set by the G7, but still lower than the flat price of Brent.

But Russia, which has committed to the Saudi production squeeze plan by announcing a 300,000 bpd cut of its own, is also under pressure to keep up with deliveries promised to customers.

Moscow recently eased its separate ban on fuel exports introduced to stabilize the domestic market. Analysts do not expect those restrictions to stay for long because they may hit refinery runs and impact relations with customers.

Turkey, Brazil, Morocco, Tunisia and Saudi Arabia were among the main destinations for Russian diesel this year, JPMorgan said in a note.

"(A) protracted export ban would negatively impact the relationship with the new customers that Russian oil companies have so painstakingly built over the last year and a half," according to JPMorgan.

Even so, Russia has not discussed a possible crude oil supply increase to compensate for Moscow's fuel exports ban with OPEC+, the Kremlin has said.

That communication might be made directly when the Russians and Saudis hold talks at Wed's OPEC+ meeting.

After having psyched the trade into believing their production cuts could go on indefinitely and against market reality, it would be important for neither side not to publicly admit anything to the contrary and work instead in keeping up the narrative they have created.