By Shariq Khan
NEW YORK (Reuters) -Oil prices edged lower on Tuesday as cooling expectations of interest rate cuts pushed the dollar to a one-month high and forecasters predicted weather in U.S. production hubs will turn warmer-than-normal later this month.
U.S. West Texas Intermediate (WTI) crude futures fell 56 cents, or 0.8%, from Friday’s settlement to $72.12 a barrel by 1:48 p.m. ET (1848 GMT). U.S. markets were closed for a public holiday on Monday.
Global benchmark Brent Crude futures fell 19 cents, or 0.2%, from Monday’s settlement to $77.96 a barrel. At the session high, Brent futures were up by a dollar a barrel.
Weighing on oil prices, the U.S. dollar hit a one-month high as investors dialed back expectations of an interest rate cut by the Federal Reserve in March. As stronger greenback dents demand for dollar-denominated oil among buyers using other currencies.
Forecasts for warm weather later in January in the major U.S. production hubs also weighed on prices, said Jay Hatfield, portfolio manager at InfraCap in New York.
Meteorologists projected weather in the U.S. Lower 48 states would switch from colder than normal this week to mostly warmer than normal from Jan. 22-31.
Oil prices drew support from signs of escalating tensions in the Middle East, as the U.S. military carried out a new strike in Yemen against four Houthi anti-ship ballistic missiles.
Houthi attacks on Red Sea shipping have been disrupting global movement of goods through the key trading route.
“Tensions in the Middle East are rising so the geopolitical risk premium in oil prices should be rising as well,” said Rob Thummel, managing director at energy investment firm Tortoise Capital.
Concerns of the conflict spreading throughout the region 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.
Despite the escalation, oil traders appear to be waiting for hard evidence of supply disruption before they push prices higher, said Fiona Cincotta, analyst at City Index.
(Reporting by Shariq Khan; additional reporting by Robert Harvey, Arathy Somasekhar and Trixie Yap; editing by Barbara Lewis, Jason Neely, Paul Simao and David Gregorio)
