Oil extended a decline, with industry data pointing to a gain in U.S. crude inventories ahead of a U.S. Federal Reserve policy decision due later.

Benchmark Brent futures briefly fell below US$85 a barrel for the first time since mid-March, while West Texas Intermediate traded below $81. U.S. crude stockpiles increased by 4.9 million barrels last week, according to the American Petroleum Institute. That would be the fifth expansion in six weeks if confirmed by official data later Wednesday.

The data add to a bearish picture as traders monitor prospects for a cease-fire in the Middle East, which could ease tensions and weigh on oil prices. On Tuesday, there were more bearish Brent options traded than bullish ones for the first time since March, an indication that traders are becoming less concerned about geopolitical risks.

Wednesday also marks the Labour Day holiday in many countries, meaning trading volumes were thinner than usual.

Crude is starting May on the back foot after a rocky April that saw it surge to the highest since October following Iran’s unprecedented attack on Israel. While OPEC+ supply curbs are also supporting prices, uncertainty over U.S. monetary policy and softness in fuel markets including diesel are adding to headwinds. Economic data on Tuesday reinforced bets Fed officials will keep rates steady at a two-decade high.

“The potential for a cease-fire agreement between Israel and Hamas has eased concerns of an escalation of the conflict and any possible disruptions to supply,” ANZ Banking Group Ltd. analysts Brian Martin and Daniel Hynes said in a note. “Continued signs of inflation also raised concerns about demand for crude oil” ahead of the U.S. driving season, when gasoline consumption rises.

In another sign of bearishness, contracts are trading below their 50-day moving averages. A sustained break below those levels could spur further selling of crude.

Prices:

• Brent for July dropped 1.5 per cent to $85.08 a barrel by 9 a.m. New York time
• WTI fell 1.7 per cent to $80.53 a barrel