Oil prices settle down on fears of Fed and oil profit tax | Reuters

Oil prices settle down on fears of Fed and oil profit tax | Reuters

Oil prices settled lower on Tuesday on fears the U.S. Federal Reserve will surprise markets with a higher-than-expected interest rate hike.

Most Fed watchers had expected the U.S. central bank to hike rates by 50 basis points at its meeting on Wednesday. But after Friday's surprisingly strong consumer price index (CPI) data for May, more expect a rate hike of 75 basis points. read more

Brent crude futures settled down $1.10, or 0.9%, to $121.17 a barrel. U.S. West Texas Intermediate (WTI) crude fell $2, or 0.7%, to settle at $118.93 a barrel.

"This fear of an even greater basis point hike is driving down equities and oil," said John Kilduff, partner at Again Capital LLC in New York.