Brent futures fell $2.85, or 3.8%, to $72.47 a barrel by 12:29 p.m. EDT (1629 GMT). The global benchmark hit a session low of $71.70 a barrel, its lowest since March 20, Reuters reported.

U.S. West Texas Intermediate crude (WTI) fell $2.92, or 4.1%, to $68.74. WTI dropped to a session low of $67.95 a barrel, lowest since March 24.

Both benchmarks fell 5% during the previous session, when they notched their biggest daily percentage declines since early January.

"The Federal Reserve is expected to deliver another quarter-point increase later today as part of its long-running battle against inflation," PVM Oil analyst Stephen Brennock said.

He added that concerns about the health of the U.S. banking sector and downbeat U.S. jobs data "did nothing to dispel fears that the U.S. economy is barrelling towards a shallow recession."

The Fed is expected to hike interest rates 25 basis points, and the European Central Bank is also expected to raise rates at its policy meeting on Thursday. Rate hikes could slow economic growth and hit energy demand.

Oil prices extended losses after government data showed U.S. gasoline inventories (USOILG=ECI) unexpectedly rose by 1.7 million barrels last week. Analysts polled by Reuters had expected a 1.2-million-barrel drop.

"The most notable thing is that gasoline demand gave back all of the increases that we'd seen in previous weeks," said Andrew Lipow, president of Lipow Oil Associates in Houston.

U.S. crude inventories (USOILC=ECI) fell by 1.3 million barrels in the week, compared with forecasts for a 1.1-million-barrel drop.

Energy prices also came under pressure after data from China over the weekend showed April manufacturing activity fell unexpectedly in the world's largest energy consumer and top buyer of crude oil.

The post-pandemic reopening of China's economy will be pivotal for Asia, the International Monetary Fund said on Tuesday as it raised its economic forecast for the region. But it warned of risks from persistent inflation and global market volatility driven by Western banking-sector woes.

Morgan Stanley lowered its forecast for Brent prices to $75 a barrel by year-end.

"Downside risk to Russia's supply and upside risk to China's demand have largely played out and prospects for 2H tightness have weakened," the bank said in a note, referring to buoyant exports from Russia despite Western sanctions.