NEW YORK: After hitting seven-week highs, oil prices slumped 2% on Tuesday as Reuters reported that the United States could ease some restrictions on Venezuela's government, raising hopes that the market could see some additional supplies.

Prices also fell after Federal Reserve Chairman Jerome Powell warned the economy could be hurt by attempts to reduce inflation.

For the first time since May 2020, the Brent international benchmark settled below U.S. West Texas Intermediate crude. Refiners worldwide have scrambled to find alternative energy supplies after Russia's invasion of Ukraine. U.S. reserves are falling and that has raised the price for U.S.-based crudes, said Andrew Lipow, president of Lipow Oil Associates in Houston.

Brent crude LCOc1 fell $2.31, or 2%, to settle at $111.93 a barrel, and U.S. West Texas Intermediate (WTI) crude CLc1 fell $1.8, or 1.6%, to settle at $112.40 a barrel.

Powell suggested there could be some economic pain involved in bringing inflation down. The U.S. central bank will "keep pushing" to tighten U.S. monetary policy until it is clear that inflation is declining, he said.  

"Some of those comments tempered buying enthusiasm on the oil side," said Phil Flynn, an analyst at Price Futures Group.

U.S. President Joe Biden's administration will authorize U.S. oil company Chevron Corp CVX.N to negotiate with Venezuelan President Nicolas Maduro's government as soon as Tuesday, Reuters reported, citing sources. There is no final U.S. decision yet on renewing Chevron's current limited license to operate in Venezuela, the source said.  

Oil prices have generally been rising as Russian supply is squeezed by bans from several countries and an economic downturn due to broad sanctions on Moscow imposed by the United States and allies.

Russia's production dropped by 9% in April, and the country, part of the OPEC+ group, produced far below levels required under a deal to gradually ease record output cuts made during the worst of the pandemic in 2020. 

This month, non-Russian deliveries into the Polish port of Gdansk hit the highest in at least seven years, as refiners in eastern Germany and Poland switched. 

"Ultimately, this is a supply-side story," said Fawad Razaqzada, analyst at City Index. "Unless OPEC and its allies ramp up production and fast, it is difficult to see how prices can go down meaningfully."

EU foreign ministers failed on Monday in their effort to pressure Hungary to lift its veto on the proposed oil embargo. But some diplomats now point to a May 30-31 summit as the moment for agreement on a phased ban on Russian oil. 

U.S. crude and gasoline stocks fell last week, according to market sources citing American Petroleum Institute figures on Tuesday. U.S. government data is due on Wednesday.

 - Reuters