Oil prices edged lower on Tuesday as investors weighed the impact of tensions in the Middle East against a stronger dollar and cooled expectations of U.S. interest rate cuts.
Brent crude futures were down 46 cents, or about 0.59%, to $77.69 a barrel at 1532 GMT. The contract had traded more than $1 higher than its Monday settlement earlier in the session.
U.S. West Texas Intermediate crude was down 90 cents, or 1.24%, from Friday at $71.78 a barrel. U.S. markets were closed for a public holiday on Monday.
An escalating shipping crisis in the Red Sea and Iranian missile strikes on targets in Syria and Iraq added to the geopolitical risk premium on oil prices on Tuesday.
But prices may find a ceiling unless production is shut in, analysts said.
“Oil markets are still sensitive to tensions in the Middle East, but the base case remains that we’ll see no significant disruption to flows,” OANDA analyst Craig Erlam said.
“In the absence of actual and palpable impact on oil output, prices will remain well within the current $72-$82 range,” Tamas Varga, an analyst at PVM, said in a note.
Oil prices to be giving way to a stronger dollar and weaker equities on Tuesday, Varga added, because of cooling expectations that the Federal Reserve could start cutting interest rates as soon as March.
As the main currency oil is traded in, a stronger dollar can impact demand.
Investors were awaiting a speech by Fed Governor Christopher Waller at 1600 GMT on Tuesday for clues about when the U.S. central bank might begin to cut rates.
The European Central Bank’s interest rates are likely to come down this year, but policymakers have avoided making firm statements on the timing of such cuts.
In the Red Sea, a Malta-flagged bulk carrier was struck by a missile off Yemen on Tuesday.
NYK (9101.T), Japan’s largest shipper by sales, instructed all vessels it operates not to use the Red Sea, while Sovcomflot (FLOT.MM), Russia’s leading tanker group, is also considering alternative routes.
Oil major Shell (SHEL.L) said it had suspended all shipments through the Red Sea indefinitely after last week’s strikes, the Wall Street Journal reported.
Concerns of the conflict spreading throughout the region also grew on Tuesday, as Iran’s striking of targets in the semi-autonomous Kurdistan region of Iraq triggered a diplomatic dispute. Iran also attacked Islamic State positions in Syria.
Source: Reuters (Reporting by Robert Harvey, Arathy Somasekhar in Houston and Trixie Yap in Singapore; editing by Barbara Lewis, Jason Neely and Paul Simao)