Oil prices slides down as Fed cuts rates and peace talks channelises between Israel and Hamas

The recent ceasefire negotiations between Israel and Hamas in Cairo on Monday resulted in a reduction of nearly $1 per barrel in oil prices, allaying fears of a wider Middle East conflict.

Further depressing market sentiment was the indication provided by U.S. inflation data that interest rate reduction might not happen anytime soon. As of 11:13 a.m. EDT (1513 GMT), Tuesday’s Brent crude futures were down $1.25, or 1.4%, at $88.25 a barrel.

Israeli bombings killed 25 Palestinians and injured several more during Hamas leaders’ arrival in Cairo for talks with Egyptian and Qatari intermediaries.“Optimism prevailed from the start of the trading session as cooling of US bond yields and letdown in middle-east conflict coupled with a drop in crude oil prices generated a lot of enthusiasm amongst the investors. With the polling season on, the market is hoping for a clear mandate in favour of the ruling party. The two-day Fed’s monetary policy meeting starting Tuesday will be closely watched by global investors, although markets doesn’t expect any change in the policy outcome,” stated Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd.

What’s driving the oil prices?

• Egyptian Foreign Minister Sameh Shoukry was upbeat about the state of affairs, but he also said that Egypt is waiting on comments from Hamas and Israel over the suggested proposal.
• Also, traders were keeping a tight eye on the U.S. Federal Reserve’s monetary policy review, which is set on May 1. This review could reveal the central bank’s position on interest rate changes.
• With inflationary pressures still there and the labor market still strong, investors are being cautious and project a higher chance that the Fed will hike interest rates by a quarter of a percentage point this year and the following.
• The United States’ monthly inflation rate increased somewhat in March, which dampened prospects of rate cuts coming soon.

“Crude oil prices exhibited significant volatility last week, rebounding from their lows amidst global supply concerns and a decrease in U.S. oil inventories. Heightened tensions in the Middle East following Israel’s escalation in Gaza renewed worries about global oil supply. The U.S. crude oil stocks experienced a larger-than-expected decline, according to the U.S. EIA, with inventories dropping by 6.4 million barrels for the week ending on April 19, 2024, compared to an anticipated build of 1.6 million barrels. This unexpected decrease in stocks, coupled with increased tensions in the Middle East, provided support to oil prices at lower levels. However, the disappointing U.S. GDP data, surge in U.S. inflation, and the strength of the dollar index are constraining the potential gains in crude oil prices. Anticipating continued volatility in today’s trading session, we foresee crude oil finding support at $82.10–81.40, with resistance levels at $83.30-83.90,” mentioned Rahul Kalantri, VP Commodities at Mehta Equities Ltd.