Oil prices edged lower on Tuesday following US data indicating robust crude output and exports, extending losses triggered by optimism surrounding a potential Israel-Hamas ceasefire. Investors are also awaiting cues on U.S. interest rates from the Federal Reserve meeting this week.
Brent crude futures for June, set to expire on Tuesday, saw a decline of 35 cents, or 0.4%, to $88.05 a barrel, while the more active July contract dropped 49 cents, or 0.6%, to $86.71. Similarly, U.S. West Texas Intermediate (WTI) crude futures were down 41 cents, or 0.5%, at $82.22.
The dip in prices follows a more than 1% loss on Monday as the U.S. Energy Information Administration reported an increase in crude production to 13.15 million barrels per day (bpd) in February from 12.58 million bpd in January. Additionally, exports rose to 4.66 million bpd from 4.05 million bpd in the same period.
According to Commerzbank analyst Carsten Fritsch, renewed hopes for a ceasefire between Israel and Hamas at the beginning of the week, coupled with decreased crude demand from refineries, contributed to the decline in oil prices.
Israel is currently awaiting Hamas’ response to proposals for a halt to fighting in Gaza and the return of Israeli hostages before continuing talks in Cairo aimed at ending the seven-month conflict. Attacks by Yemen’s Houthis on maritime traffic south of the Suez Canal have supported oil prices, potentially leading to higher risk premiums if crude supply disruptions are expected.
Market strategist Yeap Jun Rong from IG highlighted concerns over the upcoming Fed meeting, suggesting that a prolonged period of high-interest rates could lead to a stronger U.S. dollar and adversely affect oil demand.
Some investors are cautiously considering a higher probability of the Fed raising interest rates by a quarter of a percentage point this year and next, driven by resilient inflation and labor market data.
Concerns over demand have also weighed on sentiment, with ANZ analysts noting that diesel and heating oil premiums against crude oil have fallen to their lowest levels in months.
A Reuters poll indicates that oil prices could remain above $80 a barrel this year, with analysts revising forecasts upward due to expectations of supply lagging behind demand amid conflicts in the Middle East and output cuts by the OPEC+ producer group.
Oil prices edged lower as healthy US output and geopolitical developments weighed on market sentiment. The oil market continues to react to various factors, including geopolitical tensions, production data, and monetary policy signals. While hopes for a ceasefire in the Middle East and increased U.S. crude output have put downward pressure on prices, uncertainty surrounding the Fed’s interest rate decisions and ongoing conflicts could keep oil markets volatile in the near term.
