Oil prices held steady as investors kept an eye on Middle East talks and upcoming central bank meetings

Oil stabilized on Tuesday following a decline the day before, with hopes for a ceasefire emerging from Israel-Hamas talks amid ongoing Red Sea attacks. Investors also remained cautious ahead of a crucial U.S. interest rates meeting scheduled for Wednesday.

Brent crude futures climbed 27 cents, or 0.3%, reaching $88.67 a barrel at 0830 GMT, while U.S. West Texas Intermediate crude futures rose by 30 cents, or 0.4%, to $82.93 a barrel.

Both benchmarks‘ front-month contracts experienced losses exceeding 1% on Monday.

“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,” explained Yeap Jun Rong, market strategist at IG.

Hamas representatives departed Cairo late Monday to confer with their leadership following discussions with Qatari and Egyptian mediators regarding Israel’s phased truce proposal presented over the weekend.

Two Egyptian security sources indicated that the delegation was anticipated to provide a report within two days.

Vandana Hari, founder of oil market analysis provider Vanda Insights, noted, “The market will need a deal to be actually clinched in order to resume a sell-off in crude”.

Ongoing attacks by Yemen’s Houthis on maritime traffic in the vicinity of the crucial Suez Canal trading route have maintained support for oil prices and might lead to increased risk premiums if market participants anticipate potential disruptions in crude supply.

Investors are closely monitoring the U.S. Federal Reserve’s policy review scheduled for May 1 this week, as persistent inflationary pressures have pushed back market expectations for any potential rate cuts. This situation could strengthen the U.S. dollar and potentially dampen oil demand.

Some investors are cautiously factoring in a higher probability of the Fed hiking interest rates by a quarter percentage point this year and next, given the resilience of inflation and the labor market.

ANZ analysts noted in a research note that concerns over demand have also weighed on sentiment, with premiums for diesel and heating oil over crude oil falling to their lowest levels in months.

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