LONDON :Oil prices steadied on Tuesday as weakness in the physical market and concerns about sticky U.S. inflation countered fears of escalation in the Middle East as Israel stepped up attacks in southern Gaza while a ceasefire deal hung in the balance.
The Israeli military seized control of the Rafah border crossing between the Gaza Strip and Egypt and its tanks pushed into the southern Gazan town of Rafah, as mediators struggled to secure a ceasefire agreement.
Brent crude futures were down 30 cents, or 0.4 per cent, at $83.03 a barrel by 1330 GMT while U.S. West Texas Intermediate (WTI) crude futures fell 25 cents, or 0.3 per cent, to $78.23.
“Truce remains elusive, and even if it is reached the question remains whether Houthi hostilities in the Red Sea would cease and the Suez Canal would reopen, significantly mitigating the risk of shipping throughout the region,” said Tamas Varga of oil broker PVM.
“I believe the lack of optimism of the past few days is more the result of genuine weakness in the physical markets.”
In a sign of easing concern that supply could tighten, the first-month Brent contract’s premium to the six-month contract slipped to $2.85 a barrel for its lowest since mid-February.
“Trying to use geopolitics as an excuse to buy crude oil has become an increasingly futile and costly affair for traders in recent months,” said Ole Hansen of Saxo Bank, adding that the drop in crude spreads highlights “a well supplied market, leaving the upside capped for now”.
Last week Brent and WTI had registered their steepest weekly losses in three months as the market focused on weak U.S. jobs data and the possible timing of a Federal Reserve interest rate cut.
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said on Tuesday that inflation moving sideways shows monetary policy may not be as tight as some officials think.
A stronger dollar also weighed, making crude more expensive for traders holding other currencies.
As well as Middle East tensions, the latest U.S. inventory reports will also be in focus.
U.S. crude oil and product stockpiles were expected to have fallen last week, a Reuters poll showed. Crude inventories could have fallen by about 1.2 million barrels in the week to May 3, based on analyst forecasts. [EIA/S]
