Oil prices held near US$78 a barrel after Israel rejected a cease-fire proposal for the Gaza Strip and took control of the Rafah border crossing. 

West Texas Intermediate was little changed. Israel’s war cabinet unanimously rejected a cease-fire proposal agreed to by Hamas. The Jewish state has vowed to continue military operations in Rafah, which Prime Minister Benjamin Netanyahu says is the last bastion of Hamas. Most Arab and many European states have said Israel should not attack Rafah, fearing it would cause mass casualties.

Meanwhile, Russian Deputy Prime Minister Alexander Novak said the OPEC+ grouping is analyzing the possibility of increasing oil output along with all other options before its next meeting in June.

Oil is looking to claw back some ground after posting its biggest weekly drop since February. Prices remain higher year-to-date as OPEC+ production cuts have tightened the market. While the cartel is expected to keep supplies tight, the demand outlook is clouded, with diesel flashing signs of weakness. 

 “Geopolitics is back in the driving seat for crude oil traders after last week’s drop,” said Charu Chanana, an analyst at Saxo Capital Markets Pte in Singapore. “The demand outlook remains supported by expectations of Fed rate cuts, and focus today will be on the EIA outlook report.”

The Energy Information Administration is due to release its Short-Term Energy Outlook later Tuesday, offering clues on market dynamics, including the pace of US oil supply and prospects for further growth. Nationwide output recently hit a record above 13 million barrels a day.

Prices:

• Brent was steady at $83.16 a barrel at 12:12 p.m. in London.
• WTI traded at $78.36 a barrel.