Oil prices fell slightly on Tuesday after Israeli-Hamas ceasefire talks in Cairo helped allay fears of escalating conflict in the Middle East and concerns about the outlook for interest rates in the United States weighed on the market.
Brent crude futures were down 19 cents, or 0.21%, at $88.21 a barrel at 06:30 GMT, while WTI crude futures were down 20 cents, or 0.24%, at $82.43 a barrel.
Front-month contracts for both benchmarks lost more than 1% on Monday.
Ongoing negotiations between Israel and Hamas for a potential ceasefire have led to a further loosening of the geopolitical risk premium, while the upcoming Fed meeting has also triggered some near-term reservations.
If interest rates remain at higher levels for a longer period, this could trigger further gains in the US dollar and also pose some risks to the oil demand outlook.
Hamas negotiators left Cairo late Monday to consult with their leaders after holding talks with Qatari and Egyptian mediators on a response to a phased ceasefire offer offered by Israel over the weekend. The delegation is expected to report within two days.
However, while negotiations continued, Israeli airstrikes on Monday killed dozens of Palestinians; More than half the dead were in the southern Gaza city of Rafah, where foreign leaders have urged Israel not to invade.
Continued attacks by Yemen’s Houthis on maritime traffic south of the Suez Canal trade route have created a floor under oil prices and could lead to higher risk premiums if market actors anticipate crude oil supply disruptions.
On the economic front, investors await the US Federal Reserve’s May 1 policy review this week; Stubborn inflation does not serve the market’s interest rate cut expectations. High-interest rates support the US dollar and hinder oil demand.
Some investors are cautiously pricing in a higher likelihood that the Fed could raise interest rates by a quarter point this year and next as inflation and the labor market remain resilient.
Analysts stated that concerns about demand also suppressed sentiment, and premiums for diesel and heating oil fell to their lowest level in months compared to crude oil.
Four-week average consumption in the U.S. is near the average seasonal low in the last five years, according to data from the Energy Information Administration (EIA).
