Oil prices fall as hopes for a Middle East ceasefire ease supply worries

By Arathy Somasekhar

(Reuters) – Oil prices fell slightly on Tuesday after Israel agreed to a proposal to resolve disagreements preventing a ceasefire in the Gaza Strip, helping to ease concerns about supply disruptions in the Middle East.

Brent crude fell 12 cents, $2.02, or 0.15%, to $77.54. U.S. West Texas Intermediate crude futures expiring Tuesday settled at $74.23 a barrel, down 14 cents, or 0.2%. The more heavily traded two-month contract lost 15 cents, or 0.2%, to settle at $73.52.

Brent fell about 2.5 percent on Monday, while WTI fell 3 percent.

US Secretary of State Antony Blinken said on Monday that Israeli Prime Minister Benjamin Netanyahu had accepted a “bridge proposal” put forward by Washington to resolve differences blocking a ceasefire agreement in the Gaza Strip and called on Hamas to do the same.

But after the Palestinian Islamist group announced a resumption of suicide bombings in Israel after many years, claimed responsibility for an explosion in Tel Aviv on Sunday night, and medics said at least 30 Palestinians were killed in Israeli military strikes in the Gaza Strip on Monday, there are few signs of reconciliation on the ground and fears of a wider war are high.

The increase in production in Libya's Sharara oil field to around 85,000 barrels per day is also helping to satisfy supply concerns. The aim of this measure is to supply the Zawia oil refinery, two engineers working in the field told Reuters on Monday.

Libya's National Oil Corporation (NOC) declared force majeure for oil exports from the field on August 7 after a blockade by protesters affected production at the 300,000 barrel-per-day field.

According to a preliminary Reuters poll on Monday, crude oil inventories in the United States are likely to have fallen by 2.9 million barrels last week.

On the demand side, concerns about China's economic woes also weighed on oil prices. After a dismal second quarter, the world's second-largest economy lost further momentum in July as new home prices fell at the fastest pace in nine years, industrial production slowed, export and investment growth slowed and unemployment rose.

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Meanwhile, investors were also waiting for clues about the US Federal Reserve's plans for the next interest rate decision.

The Fed will cut interest rates by 25 basis points at each of its remaining three meetings in 2024, a larger cut than forecast last month, according to a narrow majority of economists surveyed by Reuters who believe a recession is unlikely.

Fed members Mary Daly and Austan Goolsbee raised the possibility of monetary easing in September over the weekend, and the minutes of the latest monetary policy meeting due this week are likely to underscore the dovish outlook.

Fed Chairman Jerome Powell speaks in Jackson Hole on Friday and investors expect him to acknowledge the arguments for a rate cut.

Interest rate cuts will lower borrowing costs and could boost oil demand in the world's largest oil-consuming country.

A looming industrial action at Canada's two main railroads is unlikely to significantly reduce oil exports or halt production in Canada because the Trans Mountain and other pipelines have capacity, people familiar with the matter said.

(Reporting by Arathy Somasekhar in Houston; Editing by Himani Sarkar)