Investing.com– Oil prices extended gains in Asian trading on Tuesday after Israel launched airstrikes across Gaza, reportedly breaching a ceasefire after stalled hostage negotiations.

Oil struggled to post significant gains as investors remained cautious ahead of the Federal Reserve’s policy meeting later in the day.

Brent Oil Futures expiring in May rose 0.4% to $71.32 per barrel as of 22:51 ET (02:51 GMT), while West Texas Intermediate (WTI) crude futures also gained 0.4% to $67.61 per barrel.

Both contracts ended nearly 0.7% higher on Monday, buoyed by geopolitical tensions in the Red Sea, and optimism surrounding China’s plan to boost consumption.

Israel resumes airstrikes in Gaza amid ceasefire breakdown

Israel launched extensive airstrikes across the Gaza Strip on Tuesday, marking the most significant escalation since the January ceasefire. The Israeli military targeted multiple Hamas positions, resulting in at least 100 fatalities, according to Gaza’s Health Ministry.

Prime Minister Benjamin Netanyahu authorized these operations following stalled negotiations to extend the ceasefire and unresolved hostage situations.

His office stated that the strikes were a response to Hamas’s refusal to release hostages and rejection of proposals from U.S. envoy Steve Witkoff and other mediators.

The recent ceasefire, initiated in January, had temporarily halted a conflict that began in October 2023.

Despite the ceasefire, tensions remained high, with both sides accusing each other of violations.

The Middle East region plays a pivotal role in global energy markets, and heightened tensions can lead to concerns about potential disruptions.​

Investors await Fed commentary on Trump tariffs

Focus was also on the Federal Reserve’s meeting scheduled for March 18-19. The central bank is widely expected to maintain the federal funds rate at its current range of 4.25%-4.50% on Wednesday.

Investors are particularly attentive to the Fed’s commentary on recent trade policies, including tariffs imposed by the Trump administration, which have heightened fears of a potential recession.

Escalating trade tensions have contributed to the recent decline in oil prices, with Brent crude futures trading near three-year lows around $70 per barrel earlier this month.

The prospect of prolonged trade disputes and their impact on global economic growth could dampen oil demand, exerting downward pressure on prices.

The Fed’s insights during the meeting may provide further clarity on the trajectory of the U.S. economy and could help gauge the forecast for the U.S. dollar.

Theoretically, higher interest rates typically strengthen the U.S. dollar by attracting foreign capital, making oil—priced in dollars—more expensive for holders of other currencies, which can reduce demand and put downward pressure on oil prices.

The US Dollar Index edged up 0.1% in Asia hours.

Oil supported by Red Sea tensions, China stimulus

The U.S. administration vowed last week that airstrikes will continue indefinitely against Yemen’s Iran-backed Houthi until they cease their attacks on U.S. ships and drones.

The heightened conflict has raised concerns over potential disruptions to vital shipping routes in the Red Sea, leading to a notable impact on global oil markets.

Meanwhile, the world’s largest oil importer, China, unveiled on Sunday a comprehensive plan aimed at boosting domestic consumption, signaling a strategic shift to make internal demand the primary engine of economic growth.

The sentiment was also helped by a robust economic data barrage from China, released a day earlier.

Industrial production for Jan-Feb rose 5.9%, above expectations, while retail sales for the same period jumped 4%, compared to a 3.7% rise in December.