Investing.com–Oil prices drifted lower Monday as peace talks between Israel and militant group Hamas in Cairo tempered fears of a wider conflict in the Middle East disrupting supplies, but losses were limited by caution ahead of the latest Federal Reserve meeting.

At 08:25 ET (12:25 GMT), fell 0.6% to $87.69 a barrel, while fell 0.7% to $83.25 a barrel. 

Middle East peace talks 

A Hamas delegation will visit Cairo on Monday for talks aimed at securing a ceasefire, a Hamas official told Reuters on Sunday, with the group expected to respond to Israel’s latest Gaza phased truce proposal delivered on Saturday.

Concerns that the conflict between Hamas and Israel would balloon into a wider war in the oil-rich region prompted sharp gains earlier this month, as traders worried that this could result in a big hit to supplies from the region.

US rate fears grow on sticky inflation, Fed anticipation 

Markets further dialed back bets on early interest rate cuts by the Federal Reserve after data- the Fed’s preferred inflation gauge- read hotter than expected for March.

Fears of higher-for-longer U.S. interest rates factored into concerns that oil demand will weaken later this year, especially as economic growth weakens. This notion was furthered by weaker-than-expected U.S. growth data last week. 

Strength in the , following the inflation data, also pressured crude prices. 

The focus is now squarely on a meeting later this week, where the central bank is widely expected to keep rates steady and offer hawkish signals on monetary policy. 

Beyond the Fed, more economic cues were also in focus this week for oil markets. data from top importer China is due later in the week, and is expected to offer more insight into an ongoing economic recovery in the country. 

Geopolitical tensions, tight supply bets persist 

The specter of geopolitical tensions and potential supply risks in oil markets still remained in play.

Ukraine attacked more Russian oil refineries over the weekend, while also calling on more military aid from the U.S. over worsening conditions on the front lines. 

Attacks on Russian refineries factored into bets on tighter supplies, especially as Russia announced more production and export cuts earlier this year. 

(Ambar Warrick contributed to this article.)

By Deep Kaushik Vakil

(Reuters) -Oil prices dipped on Monday as Israel-Hamas ceasefire talks in Cairo tempered fears of a wider Middle East conflict, while U.S. inflation data dimmed the prospect of interest rate cuts soon.

futures for June, which expire on Tuesday, were down by 70 cents, or 0.8%, to $88.80 a barrel by 1245 GMT. The more active July contract fell 52 cents, or 0.6%, to $87.69 a barrel.

U.S. West Texas Intermediate (WTI) futures were down 58 cents, or 0.7%, at $83.27 a barrel.

Israeli airstrikes killed at least 25 Palestinians and wounded many others on Monday, as Hamas leaders arrived in Cairo for a new round of talks with Egyptian and Qatari mediators.

Egypt is hopeful but waiting for a response on the plan from Israel and Hamas, Egyptian Foreign Minister Sameh Shoukry said.

“With little other fresh news, the possible cooling of the Gaza environment sees oil prices slip,” said John Evans of oil broker PVM.

Markets were also on watch for the U.S. Federal Reserve’s May 1 monetary policy review.

“The language and forward forecasts will be pored over by all market participants,” PVM’s Evans said.

Investors are cautiously pricing a higher probability that the Fed could hike interest rates by a quarter percentage point this year and next as inflation and the labor market remain resilient.

U.S. monthly inflation rose moderately in March, putting a damper on expectations of rate cuts in the near future. Lower inflation would have increased the likelihood of interest rate cuts, which tend to stimulate economic growth and oil demand.

“The sticky U.S. inflation sparks concerns for ‘higher-for-longer’ interest rates”, leading to a stronger U.S. dollar and putting pressure on commodity prices, independent market analyst Tina Teng said.

A stronger dollar makes oil more expensive for those holding other currencies.

By contrast, an early look at April inflation data from the euro zone, from Spain and Germany, offers a mixed picture for the European Central Bank, but looks unlikely to derail a June rate cut.

Inflation data from the wider euro zone is to be released on Tuesday.

By Georgina McCartney

HOUSTON (Reuters) -Oil prices settled higher on Friday, garnering support from tensions in the Middle East, but a strong dollar and U.S. inflation data quashed hopes that the Federal Reserve would cut interest rates soon, giving prices a ceiling.

futures settled up 49 cents, or 0.55%, to $89.50 a barrel. U.S. West Texas Intermediate crude futures settled up 28 cents, or 0.34%, to $83.85 a barrel.

Supply concerns supported prices as tensions continue in the Middle East.

Benjamin Netanyahu, Israel’s prime minister, said any rulings by the International Criminal Court, which is investigating Hamas’ Oct. 7 attacks on Israel and Israel’s military assault on Gaza, would not affect Israel’s actions but would “set a dangerous precedent.”

As tensions escalate, Israel’s military said on Friday that its air force struck in Lebanon’s West Beqaa District and killed a militant who advanced attacks against Israel.

Israel stepped up air strikes on Rafah on Thursday after saying it would evacuate civilians from city in southern Gaza and launch an all-out assault despite allies’ warnings that doing so could cause mass casualties.

“Israel is not afraid to come and support themselves on their own if they have to, people are watching to see what happens between Netanyahu and Biden,” said Tim Snyder, chief economist at Matador Economics.

“The geopolitical element is not over, the proxy battles going on right now will continue,” and this is still providing support and helping to offset the negative pressure from the inflationary data, Snyder added.

Meanwhile, macroeconomic pressures capped gains after data released on Friday showed growing inflation.

In the 12 months through March, U.S. inflation rose 2.7% after an advance of 2.5% in February. Last month’s increase was broadly in line with economists’ expectations.

The Fed has a 2% inflation target. The U.S. central bank is expected to leave rates unchanged at its policy meeting next week.

“The economic data this morning was enough for market participants to conclude that the Fed is not going to be forthcoming with interest rate cuts any time soon,” said John Kilduff, partner with Again Capital LLC.

“Geopolitical jitters in the market are what is keeping us aloft. Those two competing forces should keep us in check,” Kilduff added.

U.S. Treasury Secretary Janet Yellen told Reuters on Thursday that U.S. GDP growth for the first quarter could be revised higher, and inflation will ease after a clutch of “peculiar” factors held the economy to its weakest showing in nearly two years.

U.S. economic growth was likely stronger than suggested by the weaker quarterly data, Yellen said. Oil prices have flip-flopped since Yellen’s comments and the release of the inflation data on Friday.

Meanwhile, the dollar soared to a fresh 34-year high against the yen on Friday, bolstered in part by the U.S. inflation data.

“Dollar strength is helping to exert negative pressure today,” Kilduff said.

Elsewhere, OPEC Secretary General Haitham Al Ghais said in an op-ed article that the end of oil is not in sight, as the pace of energy demand growth means that alternatives cannot replace it at the needed scale, and the focus should be on cutting emissions not oil use.