By Georgina McCartney
Oil prices dipped on Tuesday as growing expectations of a ceasefire in the war in Gaza weighed on prices, more than offsetting news of a potential September interest-rate cut in the European Union that supported sentiment.
futures for September fell 39 cents to $82.01 a barrel by 1135 GMT. U.S. West Texas Intermediate crude for September dropped 39 cents to $78.01 per barrel.
Oil prices declined in the previous two sessions.
European Central Bank Vice-President Luis de Guindos hinted at a possible interest rate cut in September, buoying investor sentiment on Tuesday as lower borrowing costs support oil demand and prices.
The ECB left rates on hold last week but President Christine Lagarde said the next meeting in September was “wide open”, with several policymakers openly considering more cuts as inflationary pressures ease.
“Oil is range-trading, only moderately up, and that support might come from most European stock markets in positive territory, benefiting from a risk on environment,” said UBS analyst Giovanni Staunovo.
In the U.S., some players are also betting on September rate cuts by the Federal Reserve.
In the Middle East, efforts to reach a ceasefire deal between Israel and militant group Hamas, under a plan outlined by U.S. President Joe Biden in May and mediated by Egypt and Qatar, have gained momentum over the past month.
Biden is expected to meet Israeli Prime Minister Benjamin Netanyahu on Thursday at the White House, and the two are to discuss ways to reach a ceasefire, as well as Iran and other topics.
The war in Gaza has lent support to oil prices as investors priced in the risk of potential disruptions to global crude supply.
Meanwhile, traders shrugged off news of Biden’s exit from the presidential campaign.
With the presidential debate somewhat calmed as Biden tries to clear a path for (Vice President Kamala) Harris, there does seem to be less anxiety around markets and the shelving of what the ‘Trump‘ trade might actually mean,” PVM oil analyst, Tamas Varga said in a note.
Weighing on prices, the U.S. dollar strengthened on Tuesday, making dollar-denominated oil more expensive for holders of other currencies.
“Any further weakening of demand signals, combined with a resolution in Gaza, could lead to a further decrease in oil prices,” Priyanka Sachdeva, senior market analyst at Phillip Nova said, adding that a swell in U.S. inventories last week would be a sign of dented demand.
The American Petroleum Institute, a trade group, is due to release its estimates for last week’s oil inventories on Tuesday at 4:30 p.m. local time (2030 GMT), while official U.S. government data is scheduled to land on Wednesday.
A preliminary Reuters poll of six analysts estimated that stocks, on average, fell by 2.5 million barrels in the week to July 19, while gasoline stocks likely dropped by 500,000 barrels.
Investors will also be watching out for next month’s mini OPEC+ ministerial meeting, scheduled for Aug. 1, and is unlikely to recommend changing the group’s output policy, three sources told Reuters last week.
Russian oil production is close to the quotas agreed within the OPEC+ group, Deputy Prime Minister Alexander Novak said on Tuesday.
Analysis
In summary, oil prices dipped due to hopes of a ceasefire in Gaza and expectations of an interest rate cut by the ECB in September. This news has impacted investor sentiment and led to a decrease in oil prices. The potential resolution in the Middle East conflict could further reduce oil prices, along with a strengthening U.S. dollar. Investors should monitor upcoming data releases and OPEC+ meetings for further insights into the oil market.