By Erwin Seba
HOUSTON (Reuters) – 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 <CLc1> 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.
(Reporting by Erwin Seba in Housotn; Additional reporting by Paul Carsten, Stephanie Kelly and Trixie Yap; Editing by Jason Neely, David Goodman, David Ljunggren and David Evans)