Oil prices experienced a slight dip on Monday, influenced by developments in ceasefire talks between Israel and Hamas in Cairo, which tempered fears of an escalation in the Middle East conflict. At the same time, U.S. inflation data weighed on the prospect of imminent interest rate cuts.
Brent crude futures for June, set to expire on Tuesday, fell by 70 cents, or 0.8%, to $88.80 a barrel by 1245 GMT. The more active July contract dropped 52 cents, or 0.6%, to $87.69 a barrel. Meanwhile, U.S. West Texas Intermediate (WTI) futures declined by 58 cents, or 0.7%, to $83.27 a barrel.
Israeli airstrikes resulted in casualties among Palestinians on Monday, as Hamas leaders engaged in talks with Egyptian and Qatari mediators in Cairo. Egyptian Foreign Minister Sameh Shoukry expressed hope but noted that Egypt awaits responses from both Israel and Hamas regarding the ceasefire plan. John Evans of oil broker PVM remarked, “With little other fresh news, the possible cooling of the Gaza environment sees oil prices slip.”
Market attention also turned to the U.S. Federal Reserve’s May 1 monetary policy review. Evans added, “The language and forward forecasts will be pored over by all market participants.” Investors are cautiously considering a higher probability of the Fed raising interest rates by a quarter percentage point this year and next, given the resilience of inflation and the labor market.
March saw a moderate rise in monthly inflation in the U.S., dampening expectations of imminent rate cuts. Lower inflation typically increases the likelihood of rate cuts, which stimulate economic growth and oil demand. Independent market analyst Tina Teng noted, “The sticky U.S. inflation sparks concerns for ‘higher-for-longer’ interest rates,” leading to a stronger U.S. dollar and placing pressure on commodity prices.
The recent dip in oil prices reflects a delicate balance between geopolitical tensions, inflation concerns, and market expectations, underscoring the volatility inherent in the energy markets. A stronger dollar makes oil more expensive for holders of other currencies. On the other hand, early indicators from April inflation data in the euro zone, particularly from Spain and Germany, present a mixed picture for the European Central Bank (ECB). However, it seems unlikely to derail a planned June rate cut. Inflation data from the wider euro zone is set to be released on Tuesday.
