Oil prices experienced a slight dip on Tuesday as geopolitical tensions in the Middle East cooled. Investors now are closely eyeing the U.S. Federal Reserve’s review on May 1 for any policy changes that may impact oil demand.
By 5:15 GMT, Brent crude futures saw a 0.11 percent decline to $88.3 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures saw a 0.23 percent decline to $82.44 per barrel. The front-month contract of both benchmarks saw over a 1 percent decline on Monday.
Unwinding geopolitical risk
The ongoing negotiations for a potential ceasefire in the Middle East have prompted market participants to unwind the geopolitical risk premium in oil prices. The ceasefire talks, coupled with the upcoming Federal Reserve meeting, have led to some near-term reservations among investors.
Amid the ceasefire talks, concerns persist over continued tensions in the Red Sea and their impact on maritime traffic south of the Suez Canal trading route. These tensions have contributed to maintaining a floor under oil prices. Therefore, this could potentially lead to higher risk premiums if crude supply disruptions are anticipated.
Read: Saudi Arabia gold prices decline, global rates dip as hope for early rate cuts diminishes
Fed meeting and its impact
Investors are closely monitoring the U.S. Federal Reserve’s policy review scheduled for May 1, particularly in light of persistent inflationary pressures. Market expectations for any rate cuts have been pushed out, which could bolster the U.S. dollar and potentially dampen oil demand and prices. Some investors are cautiously assessing the possibility of the Fed raising interest rates by a quarter percentage point this year and next, given the resilience of inflation and the labor market.
Concerns over demand have also weighed on market sentiment, with premiums for diesel and heating oil over crude oil reaching their lowest levels in months. Analysts noted that U.S. consumption levels are nearing the average seasonal low of the past five years, according to data from the Energy Information Administration (EIA).
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