Brent and U.S. crude futures initially climbed over $1 a barrel on Tuesday after the U.S. Energy Department said crude oil production would grow less than forecast but then gave up some of the gains on talk of a possible lengthy cease-fire in the Gaza War.
Brent crude futures settled at $78.59 a barrel, up 60 cents,
or 0.77%, while U.S. West Texas Intermediate crude futures rose 53 cents, or
0.73%, to settle at $73.51.
In its Short-Term Energy Outlook, the Energy Department said
U.S. output would grow by 170,000 barrels per day (bpd) this year, down from
the previous forecasted rise of 290,000 bpd.
U.S. Secretary of State Antony Blinken, on a Middle East
trip to seek an end to the Gaza War, said a Hamas reply to a proposal for a
cease-fire was being reviewed on Tuesday.
"There is cautious optimism in the market you're going
to see a cease-fire," said John Kilduff, partner with Again Capital LLC.
Some analysts though saw prices teetering on the outlook for
the Middle East.
"Mr. Blinken is overseas," said Phil Flynn,
analyst at Price Futures Group. "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.