Oil prices reversed gains on Feb. 1 and edged lower after false market speculation that Israel agreed to a Gaza ceasefire proposal.

Instead, a Qatar official told Reuters that Hamas has received a ceasefire proposal positively, but it has not yet responded to it.

Oil prices fell 2% on the false speculation but have since pared losses.

Brent crude futures  edged lower $0.16 to $80.39 a barrel at 1:49 p.m. EST (1849 GMT), while WTI futures fell $0.09 at $75.76.

Tensions in the Middle East have recently boosted oil prices. Worries persist over attacks by Yemen-based Houthi forces on shipping in the Red Sea that are driving up costs and disrupting global oil trading. The Houthi group also said it would keep up attacks on U.S. and British warships in what it called acts of self defence.

"The energy market remains on edge as it waits for a U.S. response to the drone attack on American troops in Jordan," ANZ Research said in a note.

Earlier on Feb. 1, two OPEC+ sources said the group would decide in March whether to extend voluntary oil production cuts in place for the first quarter after a ministerial panel meeting made no changes to the group's output policy.

OPEC+ currently has 2.2 MMbbl/d of voluntary oil production cuts, announced in November.

Supporting prices this week, Federal Reserve Chair Jerome Powell on Jan. 31 said interest rates had peaked and would move lower in coming months, with inflation continuing to fall and an expectation of sustained economic growth.

Lower interest rates and economic growth help oil demand.

Powell declined to promise that rate cuts would come as early as the Fed's March 19-20 meeting, as investors had hoped.

The U.S. also released on Feb. 1 data showing worker productivity grew faster than expected in the fourth quarter, keeping unit labor costs contained and giving the Fed another boost in the fight against inflation.

U.S. manufacturing stabilized in January amid a rebound in new orders, but inflation at the factory gate picked up.

The Institute for Supply Management (ISM) said on Feb. 1 that its manufacturing PMI increased to 49.1 last month, while economists polled by Reuters had forecast the index dipping to 47.0.

"Data from ISM came in stronger than expected, which is good for oil demand and supportive for prices," said Phil Flynn, analyst with Price Futures Group.

In China, the world's second-biggest economy, leaders revealed new support measures to help to reduce fallout from the liquidation of property developer Evergrande. 

Analysts at JP Morgan said they expected China to remain the single largest contributor to global oil demand growth in 2024, forecasting that Chinese demand would increase by 530,000 bbl/d, having jumped by 1.2 MMbbl/d last year.