Oil prices eased on Monday, giving up earlier gains as global producers kept output unchanged at this week’s meeting and investors remained cautious ahead of a U.S. Federal Reserve meeting that could exacerbate market volatility.

Brent crude was down 20 cents, or 0.2pc, at $86.46 a barrel by 0435 GMT, while US West Texas Intermediate crude was down 11 cents, or 0.1pc, at $79.57 a barrel.

Ministers from the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, collectively known as OPEC+, are unlikely to change their current oil output policy when they meet on February 1.

Still, Brent and WTI posted their first weekly losses in three weeks last week, indicating a surge in crude exports from Russia’s Baltic ports in early February.

Analysts at National Australia Bank said no changes were expected to be announced at this week’s OPEC+ meeting and that the outlook from the US Fed would be a key driver of outlook in the near term.

Ahead of the Federal Reserve’s policy meeting scheduled for January 31-February 1, the market expects the US central bank to cut interest rates to 25 basis points (bps) from the 50 bps announced in December, which could ease fears of an economic slowdown. This will limit fuel demand in the world’s largest oil consumer.

Oil prices were earlier buoyed by tensions in the Middle East following a drone attack on oil producer Iran and the world’s biggest crude importer China vowed to introduce a recovery in consumption to support oil demand over the weekend.

“It’s not yet clear what’s happening in Iran, but any upset there could disrupt the flow of crude,” said Stefano Grasso, senior portfolio manager at 8VantEdge in Singapore.

“We have Russia on the supply side and China on the demand side. Both can swing above or below expectations of a million barrels a day,” said Grasso, an oil trader at Italy’s Eni.

“China seems to have surprised the market with how quickly they are coming out of zero Covid, while Russia has surprised the resilience of export volumes despite sanctions.”

China resumes business this week after the Lunar New Year holidays. The number of passengers traveling before the holidays has increased over the past two years, but is still below 2019, City analysts said in a note, citing data from the Ministry of Transport.

“Overall international traffic will recover gradually from high singles to low singles figures through 2019 levels, and we expect further recovery as outbound tour group travel resumes on February 6,” Citi’s note said.

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