In early trade on Tuesday, oil prices slightly declined as concerns about the trajectory of US interest rates weighed on the market, but the market was also relieved by the Israel-Hamas cease-fire negotiations in Cairo, which helped allay fears of a wider Middle East conflict. At 0006 GMT, US West Texas Intermediate crude futures fell 12 cents, or 0.15%, to $82.51 a barrel, while Brent crude futures fell 5 cents, or 0.06%, to $88.35 a barrel. On Monday, both benchmarks’ front-month contracts had losses of over 1%.
Israel-Gaza truce talks
After discussing a possible response to Israel’s weekend proposal for a phased truce with mediators from Qatar and Egypt, Hamas negotiators departed Cairo late on Monday to confer with the organization’s leadership. Two Egyptian security sources stated that they anticipated the group to report back in two days. Israeli bombings killed scores of Palestinians on Monday, with over half of the casualties occurring in the southern Gaza city of Rafah, which international officials had begged Israel not to attack, while Hamas leaders were in Cairo. The Houthis of Yemen have persisted in their attacks on marine commerce south of the vital Suez Canal trade route, which has maintained oil prices below floor and may lead to greater risk premiums if participants expect delays in the supply of crude oil.
Uncertainty and market reaction
Houthis, an Iran-aligned militia, stated in a videotaped address early on Tuesday that they had attacked two US destroyers, the ship Cyclades in the Red Sea, and the MSC Orion in the Indian Ocean. Regarding the economy, investors are keeping a close eye on the U.S. Federal Reserve’s policy review on May 1. The market is expecting no rate decreases due to persistent inflation, which might strengthen the currency and reduce demand for oil. Given the continued strength of the job market and inflation, some investors are cautiously pricing in a larger likelihood that the Fed will raise interest rates by a quarter of a percentage point this year and next.
US Federal Reserve policy review
Tuesday’s oil price decline was somewhat offset by concerns about the future of US interest rates and the market’s reaction to the cease-fire negotiations between Israel and Hamas in Cairo, which helped allay concerns about the conflict’s potential to spread. At 0630 GMT, US West Texas Intermediate crude futures fell 20 cents, or 0.24%, to $82.43 a barrel, while Brent crude futures fell 19 cents, or 0.21%, to $88.21 a barrel. On Monday, both benchmarks’ front-month contracts had losses of over 1%. 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,” said Yeap Jun Rong, a market strategist at IG. According to Yahya Sarea, the military spokesperson for the Iran-aligned organization, Houthis attacked two US destroyers, the ship Cyclades in the Red Sea, and the MSC Orion in the Indian Ocean. Sarea made this announcement during a televised address early on Tuesday.
Impact on market sentiment
“Rates being kept at elevated levels for longer could trigger a further rise in the US dollar, while also putting some risks to oil demand outlook. After discussing a possible response to Israel’s weekend proposal for a phased truce with mediators from Qatar and Egypt, Hamas negotiators departed Cairo late on Monday to confer with the organization’s leadership.
Two Egyptian security sources stated that they anticipated the group to report back in two days. Israeli bombings killed scores of Palestinians on Monday, with over half of the casualties occurring in the southern Gaza city of Rafah, which international officials had begged Israel not to attack, while Hamas leaders were in Cairo. The Houthis of Yemen have persisted in their attacks on marine commerce south of the vital Suez Canal trade route, which has maintained oil prices below floor and may lead to greater risk premiums if participants expect delays in the supply of crude oil.
In conclusion, Regarding the economy, investors are keeping a close eye on the US Federal Reserve’s policy review on May 1st. The market is expecting no rate reduction due to persistent inflation, which might strengthen the US currency and reduce demand for oil. Given the continued strength of the job market and inflation, some investors are cautiously pricing in a larger likelihood that the Fed will hike interest rates by a quarter of a percentage point this year and next.
