By Erwin Seba
HOUSTON (Reuters) -Brent and U.S. crude futures climbed over $1 a barrel on Tuesday after the U.S. Energy Department said crude oil production would not grow as fast as previously forecast.
Both then fell after remarks by a U.S. Federal Reserve official pointed to a later start for interest rate cuts.
Brent crude futures were up 41 cents, or 0.4%, to $78.39 a barrel by 11:44 a.m. CST while U.S. West Texas Intermediate crude futures rose 42 cents, or 0.58%, to $73.20. Both contracts had gained over 1% before sliding on Tuesday.
In its Short-Term Energy Outlook, the Energy Department said U.S. crude oil production will rise by 170,000 bpd this year; down from the previous forecasted rise of 290,000 bpd.
Remarks by Loretta Mester, president of the Federal Reserve Bank of Cleveland, quickly followed the Energy Department release.
Mester said interest rate cuts, widely expected in the late spring, were contingent on continuing declines in inflation before being implemented later in the year.
Traders began the day anticipating the Energy Department announcement, Mester’s remarks and the results of U.S. Secretary of State Anthony Blinken trip through the Middle East to end the Gaza War.
Blinken said on Tuesday morning that Hamas had replied to an Israeli proposal for a cease-fire that would be examined in the coming hours.
“The signs of de-escalation in the Middle-Eastern crisis are missing and continue to extend some support to ailing oil prices,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
“We were waiting for what the Federal Reserve would say,” said Phil Flynn, analyst at Price Futures Group. Mr. Blinken is overseas. A lot of people don’t think he’s going to be able to land a deal.”
Inventory data due to be released later on Tuesday and on Wednesday is expected to show continued strong inventories for gasoline and diesel, Flynn said. But going forward, those inventories are expected to tighten, he added.
U.S. crude stockpiles data is due later on Tuesday. Five analysts polled by Reuters estimated on average that crude inventories rose by about 2.1 million barrels in the week to Feb. 2.
Refiners are performing overhauls on plants across the country and an outage last week of the BP refinery in Whiting, Indiana, will limit production.
At the same time, the United States continued its campaign against Iran-backed Houthis in Yemen, whose attacks on shipping vessels have disrupted global oil trading routes.
The U.S. strikes “do not point to an easing of tensions”, Commerzbank analysts Thu Lan Nguyen and Carsten Fritsch said in a note.
Yet souring demand expectations limited oil’s gains.
CMC Markets analyst Leon Li also said it would be difficult to return to previous highs, given the run of strong economic indicators from the U.S. was likely to lose steam.
“Layoffs are still increasing. This means that in the long term the (oil) demand will decline,” Li said.
(Reporting by Paul Carsten in London and Stephanie Kelly and Trixie YapEditing by Jason Neely, David Goodman, David Ljunggren and David Evans)
