Investing.com–Oil prices drifted lower Monday as peace talks between Israel and militant group Hamas in Cairo tempered fears of a wider conflict in the Middle East disrupting supplies, but losses were limited by caution ahead of the latest Federal Reserve meeting.

At 08:25 ET (12:25 GMT), fell 0.6% to $87.69 a barrel, while fell 0.7% to $83.25 a barrel. 

Middle East peace talks 

A Hamas delegation will visit Cairo on Monday for talks aimed at securing a ceasefire, a Hamas official told Reuters on Sunday, with the group expected to respond to Israel’s latest Gaza phased truce proposal delivered on Saturday.

Concerns that the conflict between Hamas and Israel would balloon into a wider war in the oil-rich region prompted sharp gains earlier this month, as traders worried that this could result in a big hit to supplies from the region.

US rate fears grow on sticky inflation, Fed anticipation 

Markets further dialed back bets on early interest rate cuts by the Federal Reserve after data- the Fed’s preferred inflation gauge- read hotter than expected for March.

Fears of higher-for-longer U.S. interest rates factored into concerns that oil demand will weaken later this year, especially as economic growth weakens. This notion was furthered by weaker-than-expected U.S. growth data last week. 

Strength in the , following the inflation data, also pressured crude prices. 

The focus is now squarely on a meeting later this week, where the central bank is widely expected to keep rates steady and offer hawkish signals on monetary policy. 

Beyond the Fed, more economic cues were also in focus this week for oil markets. data from top importer China is due later in the week, and is expected to offer more insight into an ongoing economic recovery in the country. 

Geopolitical tensions, tight supply bets persist 

The specter of geopolitical tensions and potential supply risks in oil markets still remained in play.

Ukraine attacked more Russian oil refineries over the weekend, while also calling on more military aid from the U.S. over worsening conditions on the front lines. 

Attacks on Russian refineries factored into bets on tighter supplies, especially as Russia announced more production and export cuts earlier this year. 

(Ambar Warrick contributed to this article.)