Oil rises as US rejects Moscow ceasefire suggestion in Ukraine

FILE PHOTO: An oil and gas industry worker walks during operations of a drilling rig at Zhetybay field in the Mangystau region, Kazakhstan, November 13, 2023. REUTERS/Turar Kazangapov/File Photo

By Georgina McCartney and Arathy Somasekhar

Houston (Reuters) – Oil prices climbed on Tuesday after the United States rejected Russian President Vladimir Putin’s suggestion of a ceasefire in Ukraine, according to sources.

Brent futures were up 96 cents to $82.96 a barrel by 12:16 p.m. EST (17:16 GMT). U.S. West Texas Intermediate (WTI) crude was $1.18 higher at $78.10 a barrel.

Oil prices were near flat in Monday trade after gaining 6% last week, with the conflict in the Middle East keeping prices elevated.

The U.S. rejection “punctuates that there is not really an end game in terms of a ceasefire or a peace deal until Ukraine gets what it wants,” said John Kilduff, partner at New York-based Again Capital.

“U.S. sanctions are finally starting to bite as well, and we are seeing various countries backing away from taking Russian supplies.”

News of rejection of the floated ceasefire on top of fears of further escalation of the war in the Middle East have continued to stoke future supply concerns.

U.S., Egyptian, Israeli and Qatari officials were expected to meet in Cairo on Tuesday to seek a truce in Gaza as more than a million civilians crammed into Rafah, a southern corner of the Palestinian enclave, wait in fear of an Israeli assault.

Yemen’s Iran-aligned Houthis also have kept up their attacks in the Red Sea, claiming solidarity with Palestinians and striking vessels with commercial ties to the U.S., Britain and Israel.

In an indication of tighter supply, the premium of the WTI front-month over the seventh month and 13th month held at a 3-month high. The premium of the Brent front-month over the seventh month was also at a more than 2-month high.

But changing expectations over the path of U.S. interest rates have limited price gains, with recent central banker comments dashing market speculation of rate cuts early this year.

U.S. consumer prices rose more than expected in January with increases in the costs of shelter and healthcare, data on Tuesday showed. But the pick-up in inflation is unlikely to change expectations that the Federal Reserve will start cutting interest rates in the first half of this year.

If inflation worries delay Fed rate cuts, that could dampen economic growth and hit oil demand.

The dollar rose to three-month peaks on Tuesday after the data reinforced expectations that the Fed will hold interest rates in March. The stronger dollar reduces demand for dollar-denominated oil for buyers paying in other currencies.

British inflation and euro zone gross domestic product data should land on Wednesday. Germany, the powerhouse of Europe’s economy, is not in recession and is expected to grow in 2024, Chancellor Olaf Scholz’s chief of staff Wolfgang Schmidt said on Tuesday.

OPEC on Tuesday stuck to its forecast for relatively strong growth in global oil demand in 2024 and 2025, and raised its economic growth forecasts for both years, saying there was further upside potential.

The producer group and allies including Russia, known as OPEC+, will in March be deciding whether to extend voluntary oil production cuts.

“Our balance sheet suggests that the market will be in surplus in the second quarter of 2024 if the group fails to roll over part of these cuts,” ING analysts said in a note.

(Reporting by Georgina McCartney and Arathy Somasekhar in Houston, Paul Carsten in London, Stephanie Kelly in New York and Emily Chow in Singapore; Editing by Kim Coghill, Mark Potter, Jan Harvey and Bill Berkrot)