Oil prices fall as major shipping firms return to Red Sea

Oil prices fell in early Asian trade on Wednesday, trimming strong gains from the previous session as major shipping firms began returning to the Red Sea despite continued attacks and escalating tensions in the Middle East.

Brent crude futures fell 18 cents, or 0.22 per cent, to $80.89 a barrel by 0101 GMT. U.S. WTI crude futures were down 22 cents, or 0.29 per cent, at $75.35 a barrel.

Prices on Tuesday climbed more than 2 per cent to their highest this month, continuing last week's upward momentum which saw prices rise more than 3 per cent, partly on hopes of U.S. interest rate cuts that could boost economic growth and fuel demand.

However, the prospect of a prolonged Israeli military campaign in Gaza and the spillover of the conflict to attacks on ships in the Red Sea remain major drivers of market sentiment.

On Tuesday, Israel's Chief of Staff Herzi Halevi on Tuesday told reporters that the Gaza war would go on "for many months", while Yemen's Iran-backed Houthi militia claimed responsibility for a missile attack on a container ship in the Red Sea.

Despite the attack, major shipping firms such as Maersk and France's CMA CGM were resuming passage through the Red Sea following the deployment of a multinational task force to the region.

Germany's Hapag-Lloyd is expected decide about resuming shipments on Wednesday.

Markets continue to be supported by speculation that the U.S. Federal Reserve will begin to lower interest rates in 2024, after data showed on Friday that by some key measures - such as the personal consumption expenditures (PCE) price index - inflation is now at or below the central bank's 2 per cent goal.

Lower interest rates reduce borrowing costs, which can stimulate economic growth and greater oil demand.

U.S. crude stocks were expected to have fallen by 2.6 million barrels last week, while distillate and gasoline inventories likely rose, a preliminary Reuters poll showed on Tuesday.

Inventory reports from the American Petroleum Institute industry group and the Energy Information Administration, the statistical arm of the U.S. Department of Energy, are expected on Wednesday and Thursday respectively, a day later than normal for both reports due to the Christmas holiday.