Water atomized steel powder particles are covered by heterogeneous surface oxide, formed by thin (6 to 8nm) iron oxide layer covering most of the powder surface, and particulate features formed by thermodynamically stable oxides containing, for example, Cr and Mn with surface coverage about 5%. Development of sufficiently strong interparticle necks requires as minimum full removal of the iron surface oxide layer that can be achieved by gaseous reducing agents as CO and H-2 as well as by carbon typically admixed in the form of graphite. The study evaluates the effect of concentration of reactive components of the sintering atmosphere, with special focus on carbon monoxide, on the reduction/oxidation and carburization/decarburization processes taking place during the whole sintering process. Results of the thermal analysis, SEM analysis of oxide characteristics, metallographic, and chemical analysis of the sintered compacts were correlated with thermodynamic simulation of the oxide stability in applied sintering atmospheres. High oxidation potential of the CO-containing atmospheres in case of Cr-alloyed PM steels was detected during heating stage until 1000 degrees C. Oxidation potential is linearly increasing with the increasing content of the carbon monoxide in the processing atmospheres and rather severe oxidation is observed if CO content exceeds 1vol%.