Oil prices fell in early Asian trade on Wednesday, paring strong gains in the previous session as major shipping companies began returning to the Red Sea despite ongoing attacks and heightened tensions in the Middle East.

Brent crude futures were down 18 cents, or 0.22 percent, at $80.89 a barrel by 0101 GMT. U.S. West Texas Intermediate crude futures were down 22 cents, or 0.29 percent, at $75.35 a barrel.

On Tuesday, prices rose more than two percent this month, following an upward momentum last week that saw them gain more than three percent, part of hopes for a cut in U.S. interest rates. Increase economic growth and increase demand.

However, the Israeli military campaign in Gaza will continue for a long time and the possibility that the conflict will spill over into attacks on ships in the Red Sea are the main drivers of market sentiment.

Israeli Chief of Staff Herzey Halevi told reporters on Tuesday that the war in Gaza would continue for “months”. Meanwhile, Iran-backed Yemen's Houthi group has claimed responsibility for a missile attack on a container ship in the Red Sea.

Despite the attack, major shipping companies such as Denmark's Maersk and France's CMA CGM have resumed traffic through the Red Sea after an international task force was sent to the area. German company Hapag-Lloyd is expected to announce its decision on resuming traffic in the region on Wednesday.

American interest

Markets are still supported by speculation that the Federal Reserve will begin cutting interest rates in 2024, with some key gauges showing that inflation is now at or below the central bank's target of two percent. Price index like per capita consumption expenditure.

Low interest rates reduce the cost of borrowing, which can stimulate economic growth and increase demand for oil.

A preliminary Reuters poll on Tuesday showed U.S. crude stockpiles were expected to fall by 2.6 million barrels last week, while distillate and gasoline stockpiles were likely to rise.

Inventory reports from the American Petroleum Institute and the Energy Information Administration are expected to be released on Wednesday and Thursday, respectively, a day later than usual for both reports due to the Christmas holiday.