Oil was flat on Tuesday as weakness in the physical market eased concerns about conflict in the Middle East as Israel stepped up its offensive in southern Gaza and an uncertain ceasefire agreement between Hamas and Israel served as a counterbalance.
The Israeli army has taken control of the Rafah border crossing between the Gaza Strip and Egypt and its tanks have been directed towards the southern Gaza town of Rafah as mediators struggle to broker a ceasefire agreement.
Brent crude futures were down 7 cents at $83.26 a barrel at 09:50 GMT, while West Texas Intermediate (WTI) crude futures were unchanged at $78.48.
The ceasefire remains uncertain, and even if an agreement is reached, the question remains whether Houthi hostilities in the Red Sea will end and the Suez Canal will be reopened. In the event of a compromise, the risk of transportation across the region is significantly reduced.
The lack of optimism in the market could likely be more a result of real weakness in physical markets.
In a sign that concerns about supply tightening are easing, the premium for the first-month Brent contract over the six-month contract fell to $2.95 a barrel on Monday, its lowest level since mid-February, and remained near that level on Tuesday.
Crude oil rose on Monday, partially reversing last week’s decline. Brent and WTI posted their steepest weekly losses in three months as the market focused on weak US employment data and the likely timing of the Fed’s interest rate cut.
A stronger dollar makes crude oil more expensive for investors holding other currencies, suppressing demand.
In addition to Middle East tensions, the latest US inventory reports will also be in the spotlight. US crude oil and product inventories were expected to fall last week. Crude oil inventories may have fallen by around 1.2 million barrels in the week to May 3, according to analyst estimates.
Saudi Arabia’s move to increase the official sales prices of crude oil, which it sells to Asia, Northwest Europe and the Mediterranean in June, also supported the prices and signaled expectations that demand would be strong this summer.
