Oil prices fell 1 percent in early Asian trade on Monday as Israel-Hamas peace talks in Cairo eased fears of a broader conflict in the Middle East and U.S. inflation data further reduced the chances of an interest rate cut anytime soon.
Brent crude oil futures fell $1, or 1.1%, to $88.50 a barrel before falling back to $88.55 at 01:49 GMT. West Texas Intermediate (WTI) futures fell 84 cents, or 1%, to $83.01 a barrel.
Increased mediation efforts for a ceasefire between Israel and Hamas eased geopolitical tensions and contributed to Monday’s weak opening. It is said that a Hamas delegation will visit Cairo today for peace talks.
A planned attack on Rafah, home to more than a million displaced Palestinians, could be postponed if a deal is reached that includes the release of Israeli hostages, Israel’s foreign minister said on Saturday.
Markets are also monitoring the US Federal Reserve’s May 1 policy review. Some sensitivities are at play ahead of this week’s Federal Open Market Committee meeting, which is expected to come with a more hawkish tone.
Friday’s data showed US inflation rose 2.7% in the 12 months through March, above the Fed’s 2% target. Low inflation increases the likelihood of interest rate cuts, stimulating economic growth and oil demand.
Sticky inflation in the US will trigger concerns about higher interest rates for a long time, strengthening the US dollar and putting pressure on commodity prices.
The dollar strengthened on expectations that interest rates will rise for a longer period. A stronger dollar makes oil more expensive for those who hold other currencies.
China’s industrial profit growth slowed in March, putting further pressure on the oil demand outlook, official data showed on Saturday; It was the latest sign of weak domestic demand in the world’s second-largest economy.
Cumulative profits of China’s industrial firms rose 4.3% to 1.5 trillion yuan ($207.0 billion) in the first quarter of the previous year, compared with a 10.2% increase in the first two months.
However, oil prices may rise again if US oil stock data and China’s PMI index improve this week.
Brent rose 49 cents and WTI rose 28 cents on Friday due to concerns that supply would be disrupted due to events in the Middle East.
The market ignored potential supply disruptions from Ukraine’s weekend drone attacks on the Ilsky and Slavyansk oil refineries in Russia’s Krasnodar region. A plant manager said that the Slavyansk refinery was forced to suspend some operations following the attack.
