Brent crude futures for October settlement fell 4.6%to $100.28 a barrel, after climbing 4.1% yesterday, the biggest increase in more than a month.
Inflation is near double-digit territory in many of the world's biggest economies, a level not seen in almost half a century.
This could prompt central banks in the US and Europe to resort to more aggressive interest rate increases, which could curtail economic growth and weigh on fuel demand.
"The economy will continue to remain slow with the Fed's aggressive monetary policies. Investors are now waiting for the monthly employment data on Friday," said Kunal Sawhney, chief executive of equity researcher Kalkine Group.
Prices took a tumble after comments from Iraq's state-owned marketer SOMO that the country's oil exports are unaffected by unrest, said UBS analyst Giovanni Staunovo.
Baghdad's worst fighting for years between Shi'ite Muslim groups spilled into a second day today.
SOMO also said today that it can redirect more oil to Europe if required.
More price pressure came from Russia's fastest-growing oil producer Gazprom Neft saying it plans to double oil production at its Zhagrin field in Western Siberia to more than 110,000 barrels per day.
Meanwhile, the market awaits the meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known collectively as OPEC+, on September 5.
Saudi Arabia last week raised the possibility of production cuts from OPEC+, which sources said could coincide with a boost in supply from Iran should it clinch a nuclear deal with the West.