Investing.com -- Oil prices settled lower Tuesday, as investors weighed up a jump in U.S. crude output and ongoing Gaza ceasefire talks just as Israel vowed to press on with plans to attack the southern Gaza city of Rafa that could escalate tensions in the oil-rich Middle East region.
At 14:30 ET (18:30 GMT), Brent oil futures fell 0.6% to $87.86 a barrel, while West Texas Intermediate crude futures fell 0.9% to $81.93 a barrel.
U.S. crude output in biggest monthly jump since October 2021
U.S. crude production rose to 13.15 million barrels per day in February, from 12.58 million bpd in January, marking the largest monthly increase since October, the Energy Information Administration said Monday.
The jump in output comes ahead of fresh domestic weekly crude inventory data. The American Petroleum Institute is scheduled to release its latest estimate of weekly crude inventories later in the session.
The EIA will release official petroleum data on Wednesday.
Netanyahu vows to proceed with Rafa attack amid ongoing Israel-Hamas ceasefire hopes
Israeli Prime Minister Benjamin Netanyahu said Tuesday that Israel will move ahead with an attack of the southern Gaza city of Rafah whether a ceasefire deal is struck with Hamas or not. An invasion of Rafa risks stoking further geopolitical tensions in the Middle East that could lead to a disruption in oil supplies.
Media reports said that Israel had offered a 40-day ceasefire offer to Hamas in exchange for the return of hostages and displaced families begin allowed back into northern Gaza. It also includes new wording intended to satisfy Hamas’ need for a permanent ceasefire.
The Hamas delegation left Cairo, and will return with a written response to the proposal, reports said.
Peace talks between Israel and Hamas have repeatedly fallen through in recent months, with Hamas stating that it will not accept any proposal short of a permanent ceasefire.
Fed meeting, interest rate policy in focus
Oil prices were also pressured by a stronger dollar following data showing an increase in labor costs that threatens to boost inflation and keep U.S. interest rates higher for longer.
The central bank kicked off its two-day meeting Tuesday and is widely expected to keep rates steady on Wednesday. But any signals on future rate cuts will be watched, especially as traders have largely priced out the prospect of early rate cuts in 2024.
Markets fear that higher-for-longer rates will pressure the global economy and in turn dent oil demand this year.
G7 agrees to end coal use in power generation
In other news, energy ministers from the Group of Seven major democracies agreed on Tuesday to end the use of coal in power generation "during the first half of (the) 2030s", according to an official communique.
However, in a caveat, the statement included an alternative goal of phasing out coal-fired power plants "in a timeline consistent with keeping a limit of a 1.5°C temperature rise within reach, in line with countries' net-zero pathways".
(Peter Nurse, Ambar Warrick contributed to this article.)