By Noah Browning and Deep Kaushik Vakil

LONDON (Reuters) – Oil edged up on Tuesday a day after falling as Israel-Hamas talks offered hopes of a ceasefire even as Red Sea attacks continued, while investors awaited signals on U.S. interest rates ahead of a meeting on Wednesday.

futures for June, which expire on Tuesday, were up 26 cents, or 0.3%, to $88.67 a barrel at 1101 GMT. The more active July contract rose 38 cents, or 0.4%, to $87.58 per barrel.

U.S. West Texas Intermediate crude futures were up 34 cents, or 0.4%, to $82.97 a barrel. The front-month contract of both benchmarks lost more than 1% on Monday.

“New hopes of a ceasefire between Israel and Hamas caused oil prices to fall at the start of the week,” said Commerzbank (ETR:) analyst Carsten Fritsch, adding that prices were also pressured by lower crude demand from refineries leading to higher inventory levels.

Hamas negotiators left Cairo late on Monday to consult with the group’s leadership after talks with Qatari and Egyptian mediators on a response to a phased truce proposal that Israel presented over the weekend.

The delegation was expected to report back within two days, two Egyptian security sources said.

Continued attacks by Yemen’s Houthis on maritime traffic south of the Suez Canal – an important trading route – have provided a floor for oil prices and could prompt higher risk premiums if players anticipate crude supply disruptions.

“The upcoming Fed meeting also drives some near-term reservations,” said Yeap Jun Rong, market strategist at IG. “Rates being kept at elevated levels for longer could trigger a further rise in the U.S. dollar, while also putting some risks to oil demand outlook.”

Investors are on watch this week for the U.S. Federal Reserve’s May 1 policy review, with stubborn inflation pushing out market expectations for any rate cuts, which could bolster the U.S. dollar and hamper oil demand.

Some 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 labour market remain resilient.

Additionally, concerns over demand have weighed on sentiment, ANZ analysts said in a research note, as premiums for diesel and over have fallen to their lowest in months.

Investing.com– Oil prices edged higher Tuesday, rebounding after the prior session’s declines with the focus remaining on the ceasefire talks between Israel and Hamas and the latest Federal Reserve meeting.

At 08:50 ET (12:50 GMT), rose 0.6% to $87.71 a barrel, while gained 0.7% to $83.23 a barrel. 

Israel-Hamas ceasefire talks in focus 

Both benchmarks had fallen around 1% on Monday after delegates from Israel and the militant group Hamas met in Cairo for peace talks.

Media reports said that Israel had offered a 40-day ceasefire offer to Hamas in exchange for the return of hostages and displaced families begin allowed back into northern Gaza. It also includes new wording intended to satisfy Hamas’ need for a permanent ceasefire.

The Hamas delegation left Cairo, and will return with a written response to the proposal, reports said.

Peace talks between Israel and Hamas have repeatedly fallen through in recent months, with Hamas stating that it will not accept any proposal short of a permanent ceasefire.

But a ceasefire represents a potential de-escalation in the conflict, which could see traders attach an even lower risk premium to oil.

Fears of disruptions in Middle East supply have been a key booster of oil prices in recent weeks.

Fed meeting, interest rate policy in focus 

Oil prices have also been pressured by the prospect of higher-for-longer U.S. interest rates, ahead of a this week

The central bank is widely expected to keep rates steady. But any signals on future rate cuts will be watched, especially as traders have largely priced out the prospect of early rate cuts in 2024.

Markets fear that higher-for-longer rates will pressure the global economy and in turn dent oil demand this year. 

Strength in the also pressured oil prices.

The is scheduled to release its latest estimate of weekly crude inventories later in the session.  

G7 agrees to end coal use in power generation 

In other news, energy ministers from the Group of Seven major democracies agreed on Tuesday to end the use of coal in power generation “during the first half of (the) 2030s”, according to an official communique.

However, in a caveat, the statement included an alternative goal of phasing out coal-fired power plants “in a timeline consistent with keeping a limit of a 1.5°C temperature rise within reach, in line with countries’ net-zero pathways”.

(Ambar Warrick contributed to this article.)

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.)