Written by Lila Carney
(Reuters) – Oil prices fell by more than $1 a barrel on Monday as Israeli ceasefire talks in Cairo eased fears of an escalating Middle East conflict, while U.S. inflation data dimmed prospects of an imminent interest rate cut.
Brent crude oil futures for June fell $1.10, or 1.2%, to $88.40 per barrel. The more active July contract fell $1.01 per barrel to end at $87.20.
US West Texas Intermediate (WTI) futures fell $1.22, or 1.5%, to settle at $82.63 per barrel.
At least 25 Palestinians were killed and many injured in an Israeli airstrike on Monday as Hamas leaders arrived in Cairo for new talks with Egyptian and Qatari mediators.
Egyptian Foreign Minister Sameh Shoukry said his country was hopeful but was waiting for a response from Israel and Hamas about the plan.
“The geopolitical risk premium continues to leak out today as there is no new escalation in the situation between Israel and Hamas,” said John Kilduff, partner at Again Capital. “A ceasefire or hostage release would result in an even larger risk premium.”
Markets were also focused on the May 1st monetary policy review that could indicate the direction of the Federal Reserve’s interest rate decisions.
“All market participants will be scrutinizing the wording and the outlook,” said John Evans, an analyst at oil broker PVM.
As inflation and the labor market continue to recover, investors are cautiously pricing in the possibility that the Fed will likely raise interest rates by a quarter of a percentage point this year and next.
US monthly inflation rose modestly in March, dampening expectations for near-term interest rate cuts. Lower inflation makes interest rate cuts more likely, which tends to stimulate economic growth and oil demand.
Independent market analyst Tina Teng said “the persistence of US inflation raises concerns about ‘prolonged’ interest rate rises”, leading to a stronger US dollar and putting pressure on commodity prices. Ta.
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A stronger dollar means higher oil prices for those holding other currencies. Additionally, oil markets were looking forward to Friday’s monthly U.S. non-farm payrolls report, which was closely watched by the Federal Reserve.
“This is likely to have a significant impact on oil trading next week,” said Jim Ritterbusch of Ritterbusch & Associates.
By contrast, early reviews of eurozone inflation data for Spain and Germany for April suggest a mixed picture from the European Central Bank, but a June interest rate cut seems unlikely to be derailed.
Eurozone-wide inflation data is due to be released on Tuesday.
(Reporting by Laila Carney in New York and Deep Vakil in Bangalore; Colleen Howe and Mohi Narayan; Editing by Richard Chan and Margherita Choi)
