Oil prices experienced a slight decline on Tuesday following reports of ceasefire negotiations between Israel and Hamas in Cairo, which alleviated concerns about an escalating conflict in the Middle East. However, apprehensions regarding the future of U.S. interest rates weighed on the market sentiment.
According to Reuters, Brent crude futures dropped by 10 cents, or 0.11%, to $88.30 per barrel, while U.S. West Texas Intermediate crude futures slipped by 13 cents, or 0.16%, to $82.50 per barrel on Tuesday morning.
Both benchmarks had seen a decrease of over 1% in their front-month contracts on Monday.
Market strategist Yeap Jun Rong from IG noted, “The ongoing negotiation for a potential ceasefire between Israel and Hamas has led market participants to further unwind the geopolitical risk premium in oil prices, while the upcoming Fed meeting also drives some near-term reservations.”
Concerns arise from the possibility of prolonged elevated interest rates, potentially leading to a stronger U.S. dollar and impacting oil demand.
Hamas negotiators departed Cairo late on Monday to discuss with the group’s leadership following talks with Qatari and Egyptian mediators regarding Israel’s proposed phased truce. The outcome of these discussions is expected within two days, according to Egyptian security sources.
Despite the ceasefire talks, Israeli airstrikes on Monday resulted in casualties among Palestinians, predominantly in the southern Gaza city of Rafah, prompting international calls for restraint from Israel.
Ongoing attacks by Yemen’s Houthis on maritime traffic near the Suez Canal have maintained a floor under oil prices. Houthis reportedly targeted U.S. destroyers and commercial vessels in the Red Sea and Indian Ocean, potentially raising concerns about crude supply disruptions.
Investors are closely monitoring the U.S. Federal Reserve’s policy review scheduled for May 1, with persistent inflation postponing market expectations for rate cuts.
The possibility of interest rate hikes in the near future could bolster the U.S. dollar and impact oil demand, as some investors anticipate a quarter-percentage-point increase in rates this year and next.
Concerns regarding demand have also influenced market sentiment, with ANZ analysts noting a decline in premiums for diesel and heating oil compared to crude oil, indicating subdued demand.
Data from the Energy Information Administration (EIA) suggests that U.S. consumption is nearing seasonal lows observed over the past five years.
