By Colleen Howe
BEIJING (Reuters) – Oil prices fell in early trading in Asia on Monday, erasing Friday’s gains as peace talks between Israel and Hamas in Cairo eased fears of a wider conflict in the Middle East and U.S. inflation data raised the outlook on interest rate cuts at any time further darkened soon.
Brent crude futures fell as much as $1, or 1.1%, to $88.50 a barrel, before rising again to $88.55 by 0149 GMT. West Texas Intermediate (WTI) futures fell 84 cents, or 1%, to $83.01 a barrel.
Stepped-up efforts to broker a ceasefire between Israel and Hamas eased geopolitical tensions and contributed to Monday’s weak open, IG market analyst Tony Sycamore said. A Hamas delegation will visit Cairo on Monday for peace talks, a Hamas official told Reuters.
Israel’s foreign minister said on Saturday that a planned raid on Rafah, where more than a million displaced Palestinians are sheltering, could be postponed if there is an agreement involving the release of Israeli hostages.
A White House spokesman said Israel has agreed to listen to US concerns about the humanitarian impact of the possible invasion.
Markets are also alert to the US Federal Reserve’s policy review on May 1.
“Some nerves are also at play ahead of this week’s Federal Open Market Committee meeting, which is expected to take a more aggressive tone,” Sycamore said.
U.S. inflation rose 2.7% in the 12 months through March, data showed on Friday, above the Fed’s target of 2%. Lower inflation would have increased the likelihood of interest rate cuts, which would stimulate economic growth and oil demand.
“Stubborn US inflation is raising concerns about ‘higher and longer’ interest rates,” leading to a stronger US dollar and putting pressure on commodity prices, said independent market analyst Tina Teng.
The dollar strengthened on the prospect of longer interest rates. A stronger dollar makes oil more expensive for those who hold other currencies.
China’s industrial profit growth further slowed the outlook for oil demand, slowing in March, official data showed on Saturday, in the latest sign of weak domestic demand in the world’s second-largest economy.
China’s industrial companies’ cumulative profits rose 4.3% to 1.5 trillion yuan ($207.0 billion) in the first quarter from a year earlier, compared with a 10.2% increase in the first two months .
But oil prices could rise again if US inventory data and China’s PMI index show improvements this week, Teng said.
Brent had settled 49 cents and WTI 28 cents higher on Friday on concerns about supply disruptions due to events in the Middle East.
The market ignored possible supply disruptions due to Ukrainian drone attacks on the Ilsky and Slavyansk oil refineries in Russia’s Krasnodar region this weekend. The Slavyansk refinery had to suspend some operations after the attack, a plant director said.
(Reporting by Colleen Howe; Editing by Sonali Paul)
