4/29/2024

Oil prices fall amid Israeli-Hamas talks

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Key points:

  • The decline in oil prices occurred amid the resumption of negotiations between Israel and Hamas, which reduced tensions in the Middle East.
  • Investors are awaiting the release of the Fed’s policy review on May 1.
  • Oil prices could resume gains if U.S. inventory data and China’s PMI show improvement this week.

Oil prices showed a decline on Monday, leveling out the previous day’s growth. A number of factors contributed to this. First, the resumption of peace talks between Israel and Hamas in Cairo has eased tensions in the Middle East, allaying traders’ fears of a major regional conflict. Secondly, the publication of US inflation data for March turned out to be worse than expected, which strengthened expectations of the Fed maintaining a tight monetary policy.

As a result, Brent crude futures fell by 1.09% to $88.52 per barrel, and WTI futures fell by 0.99% to $83.02 per barrel.

A chance to resolve the situation in the Middle East

Increased diplomatic efforts to mediate a ceasefire between Israel and Hamas have eased tensions in the region. A Hamas spokesman announced a planned delegation visit to Cairo next week for peace talks.

Israel’s Foreign Minister expressed on Saturday his willingness to postpone the planned invasion of Rafah, home to more than a million internally displaced Palestinians, as long as an agreement is reached on the release of Israeli hostages. A White House spokesman said Israel had agreed to take into account US concerns about the humanitarian consequences of a possible invasion.

Expected Fed meeting

Investors are eagerly awaiting the release of the US Federal Reserve’s policy review, scheduled for May 1. Nervousness is mounting ahead of this week’s Federal Open Market Committee meeting, which is expected to take a tougher tone.

US inflation rising to 2.7% for the 12 months to March, exceeding the Fed’s 2% target, raising the prospect of interest rate cuts, which could potentially boost economic growth and oil demand.

However, if the Fed decides to again raise rates and strengthen the dollar, this will make oil more expensive for holders of other currencies, which may negatively affect its value.

Weakness of Chinese demand

The outlook for oil demand was further weighed down by a slowdown in China’s industrial profit growth in March, official data showed on Saturday. This is another sign of weak domestic demand in the world’s second-largest economy.

Combined profits of China’s industrial enterprises rose 4.3% to 1.5 trillion yuan ($207.0 billion) in the first quarter compared with the same period last year, down significantly from the 10.2% recorded in the first two months.

At the same time, oil prices could resume growth if US inventories and China PMI data released this week show improvement.

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