By Adedapo Adesanya
Oil prices fell by about 2 per cent on rising expectations of a ceasefire in Gaza and growing concerns about demand in China, causing the Brent futures to shed $1.39 or 1.7 per cent to settle at $81.01 per barrel and left the US West Texas Intermediate (WTI) crude down by $1.44 or 1.8 per cent to $76.96 per barrel.
In the Middle East, efforts to reach a ceasefire deal between Israel and militant group Hamas under a plan outlined by US President Joe Biden in May and mediated by Egypt and Qatar have gained momentum over the past month.
Hamas-led fighters triggered the war on October 7 by storming into southern Israel, killing 1,200 people and taking 250 captives.
Meanwhile, the Prime Minister of Israel, Mr Benjamin Netanyahu, told families of hostages held in Gaza that a deal to secure their release could be near even as fighting raged in the Palestinian enclave.
Reuters reported that an Israeli negotiation team is due on Thursday to resume talks that would include hostages being released in return for Palestinian prisoners held in Israeli jails. According to two Egyptian security sources, Israel informed Egypt that an Israeli delegation would arrive in Cairo on Wednesday evening.
The conflict in Gaza has bolstered oil futures as investors factored in the possibility of interruptions to global crude supply in the crucial oil-producing areas of the Middle East.
Mr Hans Grundberg, the United Nations Special Envoy to Yemen, expressed concern about the significant risk of a severe escalation in the area. This comes after recent assaults on commercial ships by Iran-backed Houthi forces and the first Israeli airstrikes on Yemen in response to Houthi drone and missile attacks on Israel.
Palestinian groups, including rivals Hamas and Fatah, agreed to settle their feuds and create an interim national unity government during meetings in China.
Also weighing on prices, the US Dollar strengthened to a nine-day high against a basket of other currencies.
A stronger greenback makes oil more expensive in other countries, which can reduce demand for the fuel.
However, bets on interest rate cuts in September provided a floor to oil prices, as lower borrowing costs tend to support oil demand.
The US Federal Reserve hiked rates aggressively in 2022 and 2023 to tame a surge in inflation. Higher interest rates increase borrowing costs for consumers and businesses, which can reduce economic growth and oil demand.
China surprised markets by cutting major short and long-term interest rates on Monday, its first such broad move since last August, signalling intent to boost growth in the world’s second-largest economy.