Oil continues upward movement with Gaza ceasefire talks in focus; Brent at $78/bbl

Oil prices maintained upward momentum on Tuesday as investors awaited the result of top U.S. diplomat Antony Blinken’s efforts in the Middle East to halt the Gaza war and quell tensions in a major oil-producing region.

Brent crude futures gained 42 cents to $78.41 a barrel by 1421 GMT while U.S. West Texas Intermediate crude futures rose 46 cents to $73.24. Both contracts gained nearly 1% on Monday, rising for the first time in four sessions.

“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.

Blinken met Saudi Arabia’s de-facto ruler on Monday and on Tuesday landed in Cairo for a meeting with Egyptian President Abdel Fatah al-Sisi. Palestinians hope the visit will bring a truce before a threatened Israeli assault on Rafah, a border city where about half the Gaza Strip population is sheltering.

The ceasefire offer, delivered to Hamas last week by Qatari and Egyptian mediators, has yet to draw a response from militants who say they want more guarantees it will end the four-month-old war.

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 group has described its recent attacks as acts of solidarity with Palestinians and on Tuesday said that it will escalate further if the Israeli attacks on Gaza do not stop.

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.

Analysts said expectations of higher-for-longer interest rates in the U.S. and elsewhere, plus China’s shaky economy, could cap consumption.

CMC Markets analyst Leon Li also said it would be “difficult to return to previous highs”, given that the run of strong economic indicators from the U.S. is likely to lose steam.

“Layoffs are still increasing. This means that in the long term the (oil) demand will decline,” Li said.

On the supply side, market participants are awaiting U.S. crude stockpiles data 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.