HOUSTON: Oil dipped on Tuesday on the back of rising US crude production as well as hopes of an Israel-Hamas ceasefire. Brent crude futures for June, which expire on Tuesday, were down 52 cents, or 0.6%, at $87.88 a barrel by 11:31 a.m. ET (1531 GMT).
The more active July contract fell 63 cents, or 0.7%, to $86.56. US West Texas Intermediate crude futures were down 54 cents, or 0.7%, at $82.07.
The front-month contract for both benchmarks lost more than 1% on Monday. The US Energy Information Administration said production rose to 13.15 million barrels per day (bpd) in February from 12.58 million bpd in January while exports climbed to 4.66 million bpd from 4.05 million bpd in the same period.
Expectations that a ceasefire agreement between Israel and Hamas could be in sight have grown in recent days following a renewed push led by Egypt to revive stalled negotiations between the two. However, Israeli Prime Minister Benjamin Netanyahu vowed on Tuesday to go ahead with a long-promised assault on the southern Gaza city of Rafah. “Traders believe some of the geopolitical risk is being taken out of the market,” said Dennis Kissler, senior vice president of trading at BOK Financial.
“We’re not seeing any global supply being taken off the market.” Continued attacks by Yemen’s Houthis on maritime traffic south of the Suez Canal - an important trading route - have provided a floor for oil prices and could prompt higher risk premiums if the market expects crude supply disruptions.
Investors also eyed a 2-day monetary policy meeting by the Federal Reserve Open Market Committee (FOMC), which gathers on Tuesday. The meeting is expected to culminate on Wednesday with a decision to leave the Fed funds target rate in the 5.25%-5.50% range.
“The upcoming Fed meeting also drives some near-term reservations,” said Yeap Jun Rong, market strategist at IG, adding that a longer period of elevated interest rates could trigger a further rise in the dollar while also threatening oil demand outlook. Some investors are cautiously pricing in a higher probability that the Fed could raise interest rates by a quarter of a percentage point this year and next as inflation and the labour market remain resilient. Concerns over demand have also weighed on sentiment as diesel prices weakened.